Saturday, March 17, 2012

Franchise vs Chain Businesses

Any store you're familiar with will probably fall under one of two categories- a franchised business or a chain-owned business.
Franchised stores such as Hardrock Cafe, IHOP, Burger King, Hot Topic, and Jenny Craig license their good, services, and business-model. Anybody (Including you and I) can pay an amount to run these types of store. After paying this fee, the person setting up the store pays a fixed percentage of sales to corporate as long as the contract stands. Why would somebody want to pay a fee when they could just start-up their own business? Well, let's say you want to start a breakfast place but have little experience with doing so. Given this circumstance, you can turn to IHOP. They will tell you exactly how to run the business and maximize profits. The best part is that they have a steak in the business's successes- the more you make, the more they make.
In contrary, company owned chain stores such as Starbucks, J.C. Penney, and Gap are all owned by the main organization. The organization itself goes through the trouble of seeking capital, finding locations, etc. Nobody can simply own a Starbucks.
I intend to elaborate more about this in a future post; however, I hope this gives you a basic understanding about the difference.

Thursday, March 15, 2012

Price Ending Effect (there's a big difference between $8.99 and $9)

Even though you and I clearly know the difference between $8.99 and $9, even a slight modification to a numbers can affect our buying habits. According to Manoj Thomas and Vicki Morwitz from New York University, your perception of the price generally changes not because of the "ending [of] the price," but rather because of the "change in the left-most digit" (Manoj). Essentially, the reduction of the left most digit gives the appearance of a significantly lower price. However, as found by one researcher, H. G. Parsa, the .99 ending is not always a good idea. Mr. Parsa found that "many believe that just-below prices (another term for the .99 ending) connote good value and round-number prices connote high quality." Perhaps this is because of the number of zeros in the price. Parsa continued to explain the other reasons a person might not want to use just-below prices. In addition to lowering perceived quality, the .99 price will "give an impression of not being fully honest or straightforward, and involve inconvenience in calculating or communicating the price or in making change." (Parsa) As a result, higher-end brands may not want to use this. Numbers are clearly manipulated in many ways depending on what effect a stores wants to have.
There are probably psychological effects for all the digits between 00 and 99 as well, so keep a look out and think about this next time you're shopping!

Tuesday, March 13, 2012

Water: An Industry of Marketing Geniuses and Con-Artists Alike

Above are two images of water. The one on the left costs approximately $2-2.50, while the one on the right costs pennies. This difference is accounted for by one thing: the power of advertising. Even though the finished product on the left also costs producers just pennies, it is sold to many at an incredibly high mark-up. Some people insist that they are paying for quality, but unfortunately, they are falling to the power of advertising. As one argument I will link to explains, the quality of both types of water are actually the same (if not worse in the case of bottled water). A company that can make a person pay 200 percent more than they could is no doubt successful. I have written an article on the power of advertising before, and these principles especially hold true in the case of water. In the case of other comparisons (such as Dunkin Donuts vs Starbucks), the argument can be made that one actually does have a superior quality. However, the aforementioned argument cannot even be made in the case of water.

For anybody who has caught themselves arguing the superior quality of bottled water, I would definitely suggest reading the following article
I would suggest jumping to the section titled "Walmart and giant brands no different than tap water."

CNN says 60% of workers have less than $25,000 saved... Isn't this concerning?

Earlier today, I read an extremely interesting article on that is titled "60% of workers have less than $25,000 saved". Upon reading this, I became very frightened. I have read about the declining quality of life for retired workers, the trend of older age retirement, and medical costs scares. In fact, through my extensive reading I have also started to become curious about what retired life will be like for people of our generation. The more I researched, the more I started to realize that my generation will have to start saving for retirement ASAP! Retirement plans will absolutely become less-and-less of a 'crutch'- many speculate that by the time that I will be looking to retire, social security (retirement insurance) will be in major jeopardy. The quicker teens are educated, the better it will be for our future. It would be a terrible wake-up call if we were to start thinking about these issues only when it is absolutely necessary.

Monday, March 12, 2012

Guerrilla Marketing

As defined by Wikipedia, guerrilla marketing "is an advertising strategy in which low-cost unconventional means are utilized, often in a localized fashion or large network of individual cells, to convey or promote a product or an idea." In my opinion, Guerrilla marketing is the most effective form of advertising because it is often the most memorable and enjoyable to spread. Rather than using an extensive explanation to communicate my point, I will use pictures to show why guerilla marketing is so successful.

Sunday, March 11, 2012

Let's Leave the Middle-East: The Importance of Alternative-fuel Vehicles

Alternative-fuel vehicles (biodiesel, ethanol, propane, etc) have been emphasized through political and social discussions for a few years now. The public has heard it all; however, the media focuses on the "eco-friendly" aspect of the vehicles. That is absolutely important, however I think the more important effect of alternative fuel vehicles is that America can gain independence from the Middle-East. I am by no means the first one to state this, but I would still like to take the time to explain the significance of independence.

For a long time, we have relied on the Middle-east for our supply of gasoline. The large majority of cars in the United States rely on it, and it's a basic necessity for everybody's daily routines. However, some Economists would agree that there is a hidden danger in all of this. By changing the price of gasoline even a few cents, the Middle-east can easily manipulate the economy as they please. As Fadel Gheit, analyst at Oppenheimer & Co, stated; “Higher gasoline prices; lower consumer confidence. Lower consumer confidence; very bad news for our economy.” By switching to alternative-fuel vehicles, America could solve this issue of dependance.

My proposition is that media should appeal to the American patriotism in us all. We should focus on strengthening our own economy, and alternative-fuel vehicles can be the first step in this process.

As a final note, I'd also like to say that I've written posts about gasoline prices before- I find it such a fascinating issue. I would encourage everybody interested to look back at those to get a better sense of how the market works.

Saturday, March 10, 2012

Alexander Hamilton Could Have Fixed Our Economy

I am embarrassed to admit how little I knew about Alexander Hamilton before taking US History with my teacher, Mr. Crowley-Delman. However, now that I've researched Hamilton, I believe America's financial and economic institutions owe much credit to him. Out of all his work, one of his most famous and respected policies include establishing the First Bank of the United States. He is famous for many other policies as well; however today I would like to explain the significance of the bank.

At the time of Hamilton's proposition, America had just broken off from England and formed the United States (McDonald, 1979). Prior to this point, America had been thirteen different colonies with their own systems of banking and their own ideas on how to handle finance (McDonald, 1979). Why was this dangerous? The most important reason must have that different currencies would cause disunity both internally and internationally. Just imagine if New Jersey, Texas, and Massachusetts all had different currencies. Each state would be looking out for their own interests, resulting in internal division. In addition, each state would have a different value to their currency. Other countries would have to distinguish between the different types, and America would quickly fall apart. In Hamilton's belief, establishing the first bank of the United States would solve this problem which would result in tremendous economic growth (in addition to paying of the debt America had incurred through the American Revolution) (McDonald, 1979). Establishing this bank would set up a standardized system that would serve as a model for future banks, and set a precedent for fixed currency. Hamilton had the incredible foresight to predict that unless the country could systematize economic trade, disorder would spread across the United States.

As great as the system seems to many today, there was much opposition to Hamilton in his day. Figures such as Jefferson argued that because 80% of the bank was public, other countries who would invest in it could control America's institutions and corrupt our system (Friedman, 1963) However, this was not the case. The buyers of the public shares had no link to the overseers of the national bank (Markham, 2001).

Without a visionary such as Hamilton, where would America's economy been today? He gave the United States some of the greatest tools for setting up a great financial system. World economists should look back at Hamilton's accomplishments (First Bank of the United States, the system of tarriffs, founding of the US mint, Revenue Cutter Service) and think about how we can recreate his successes to strengthen their perspective economies.

McDonald, Forrest (1979). Alexander Hamilton: A Biography. W.W. North & Co.. pp. 194.
Milton Friedman and Anna Jacobson Schwartz (1963). A Monetary History of the United States, 1867-1960
Markham, Jerry (2001). A Financial History of the United States. Armonk: M.E. Sharpe. ISBN 0765607301.

Friday, March 9, 2012

In Time: An Impressive Statement on Capitalism

Aside from being one of the most entertaining movies I've seen, the film In Time with Justin Timberlake and Amanda Seyfried also makes a brilliant statement about America's state of capitalism. In short, the movie takes us to a time where money is the currency; the poor work a day to get another day, the rich live forever, and a cup of coffee costs three minutes. As I watched, one scene specifically caught my attention. A character who had abundant time stated that although one can temporarily change the balance of the wealth, the long-term distribution will return to a state of extreme unbalance.
This was not the first time I heard the argument, and I absolutely agree with it. I strongly believe that even if we were to distribute wealth evenly, the balance would not last long. Although I believe this theory does not apply to every single person, some people are naturally more drawn to use their resources more shrewdly, while others are innately more lavish in their spending (or unaware of how to invest wisely). I would say that it is essentially the mindset which separates one type of person from the other. We have all heard stories of millionaires who lose all their money just to gain it back later. Contacts and experience definitely help the second time, but there must also be some kind of belief system that factors into this process.

Clearly, I am an advocate of this distribution theory. However, there are some aspects of it which leave me confused. For example, how long does it take to restore unbalance? Are we talking months, years, or generations? 'In the future' is a very vague term.

Regardless of your opinion on this theory, In Time is absolutely a worthwhile movie to watch. It will inevitably generate discussion and leave you with lots to think about.