UPDATE: On Friday the Susan G. Komen Foundation reversed their decision. Wonder how much damage they did to their brand though.

Everyone’s favorite pink charity is at it again this week.

In the past, they’ve been known to sue other breast cancer charities for unknowingly infringing on their trademark.

Because they’re the only ones allowed to be working “for a cure”.

This week they cut off funding for breast cancer screenings at Planned Parenthood, giving the BS reason that the organization is under federal investigation.

Come on, at least be honest.  The conservative Christian lobby is really powerful.  You’re certainly not the first group to cave, and you certainly won’t be the last.

After all, abortions make up well over 90% of what they do, right?

But for the Komen foundation, the backlash has been quick and cold.

For an organization whose words spell an outward and very public goal of ending breast cancer, their actions say something else.

Obviously it’s their money and they can allocate it how they see fit.

But I’d like to see a charity that stands for its cause in the face of whatever political pressures come along.  I’d like to see a charity whose mission transcends politics.

The fight to end breast cancer is a goal I think everyone can get behind.  It’s bigger than politics, or at least it should be.  It isn’t a Democrat / Republican thing.

That is, until you made it one.

-Nick

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The United States Postal Service is losing money at an alarming rate — an estimated $14 billion next year.  As a “semi-independent federal agency,” the USPS is mandated to be “revenue-neutral”, meaning it must pay for its own operation without additional taxpayer support.  Right now they’re failing their mandate, to the tune of approximately $125 per household per year.

The Good Old Days

The postal service used to be a surprisingly profitable enterprise for Uncle Sam.  In fact, during the first few years of the new millennium, the USPS could be counted on to add a billion dollars a year to the bottom line.  A profitable government agency?  Sounds to good to be true, but it was reality not even that long ago.

But of course people were pissed off about the cost of stamps and all that.  Government loses money and they’re incompetent and inefficient.  Government makes money and they’re greedy, monopolistic and corrupt.

They can’t win.

What Happened?

The postal service is suffering from both high legacy costs, from union-guaranteed retiree benefits, and over-capacity.  In many ways, the situation is similar to how the domestic auto industry looked a few years ago.  The car companies were saddled with a heavy burden of retiree pension and healthcare costs, and had the capacity to produce nearly double the vehicles the market was ready to consume. The USPS has similar legacy obligations and an impressive but underutilized delivery network.

And like the car industry, competition certainly played a role.  The domestics used to lament they were getting beaten by the Europeans at the top of the market and by the Japanese and Koreans at the bottom.  Services like FedEx and UPS are beating the Postal Service at the top of the market, and email and texting are beating them from the bottom.

Fixed legacy costs aside, the system is built to handle a volume of mail it will never see again.  In terms of the raw volume of mail delivered, the USPS peaked around 2005, when it delivered roughly 210 billion pieces of mail.

Projections place future demand somewhere in the ballpark of 150 billion.

How Much Should a Stamp Cost?

Let’s pretend for a moment that all 165 billion pieces of mail (we’re not down to 150 billion just yet) were simple letters.  Stamps cost $0.44.

To make up the projected $14 billion shortfall, how much would the USPS have to charge? Surprisingly, it would only take a $0.09 increase per piece of mail.  That would make stamps $0.53.  Not so bad right?

(This of course falsely assumes demand remains static in the face of rising prices, and does not factor in externalities like the pollution caused by running the world’s largest vehicle fleet.)

The Post Office Plan

In response to the sharply lower demand for their service, the Postal Service has announced plans to cut $20 billion in costs by 2015.  The plan includes:

• Closing more than 3,700 post offices
• Closing 250 mail processing centers
• Slowing delivery of first class mail
• Stopping Saturday delivery
• Eliminating up to 120,000 jobs

Of course, these painful but necessary measures have been roundly criticized by nostalgic citizens, certain businesses, and even members of Congress.  Like I said, they can’t win.

If I Was in Charge?

What would I do if I was in charge?  Probably all of the above, plus:

• Charge more.
• Charge even more for unsolicited junk mail.  In the Internet world, we have strict federal CAN-SPAM regulation for email, and email isn’t even made out of trees.
• Simplify the menu.  With the dozens of options and add-ons, it’s really confusing.  For packages, there should be two choices: Slow or Fast.  Pick one.
• Hire people who want to work there.  Every post office I go to, with the notable exception of Zephyr Cove, is a miserable experience.  You run the largest logistics operation on the planet; it’s very cool.  Yet most postal workers I encounter seem like they hate their lives and their jobs.
• Connect with ecommerce.  The real winner of online shopping was UPS, but it could have been you.  Aggressively go after their business.  Strike up deals with big ecommerce sites and eBay.
• For certain types of mail, I would slow delivery even further.  Maybe I only delivery Monday, Wednesday, and Friday.  Or maybe just Wednesdays.  I mean if someone is sending something via “snail mail” how urgent can it be?  I could probably check the mailbox once a month (or less) without any dramatic decline in my quality of life.  And I imagine I’m not alone.

Should the USPS be Completely Privatized?

It probably will be eventually, but there’s something idealistically democratic in the fact it costs the same to mail a letter across the street as it does to the middle-of-nowhere-North-Dakota.  I kind of like that.

Now is it worth $125 a year to me?  Definitely not, so let’s make sure they get back to breaking even soon.

-Nick

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Is RedStar Worldwear a Scam?

On a recent Southwest flight, I found a free $500 gift card for a company called RedStar Worldwear in my in-flight magazine.  Obviously too good to be true (right?), but certainly worth looking into.  What’s the catch? I wondered.

RedStar Worldwear

If you visit their website, you’ll see they sell sunglasses and watches.  The prices typically range from $100-200.

The Fine Print

Each free $500 gift card carries a 9% service fee.  This means if you were to order the $210 sunglasses shown above using your gift card, it would cost you $18.90 to get them delivered.

According to RedStar, the 9% service fee covers “USPS First Class delivery, processing and handling, and general overhead which includes; customer service, order processing, warehousing, labor, cost of goods and materials, profit, and marketing.”

See, they’re not hiding anything.  If the company can make money selling $200 sunglasses for $19, they’re not $200 sunglasses.  I don’t think anybody would be fooled into thinking they’re getting some amazing deal.

Does that make it a scam?  I don’t think so.

The business model (according to them):

“We are providing this offer to Gift Card Holders to create a buzz and to get the word out about our High Quality and cool sunglasses and watches.

Your returned comment cards that are provided to you along with your new sunglasses also are helping us determine the most popular styles and feature for the Sunglasses we will be retailing, starting in the state of California.

*Because our product quality compares so favorably to other national brands that sell at, or for more than, our proposed selling prices; we are planning to open up one hundred Brick and Mortar retail outlets to sell these products at our proposed Retail pricing.”

Pretty clear the above was written by someone speaking English as second language.  I would be surprised if we ever see a RedStar Worldwear retail location (but I’ve been surprised before).  Also curious why their website says “not available in California” if that is where they plan to start their retail empire.

The business model (according to me):

1. Buy cheap sunglasses.
2. Position them as a premium product and pretend to charge premium prices.
3. Offer customers a 91% discount so they think they’re getting a great deal.

Gimmicky? Yes.  Distributing free $500 giftcards? Actually pretty creative marketing.  Scam? No. (unless they don’t actually ship the product — I didn’t place a test order)

My Advice to Customers

Go ahead and shop with RedStar if you want, but be aware you get what you pay for.  Gas station sunglasses sold in a creative way.

My Advice to RedStar

I think it might actually be more effective to use a lower amount on the gift cards, like maybe $50.  $500 definitely gets the attention but it also makes people more skeptical.  A more “reasonable” amount might generate more orders.

Take control of your online reputation.  You’ve succeeded in creating some buzz, but a lot of it is negative.

Could this marketing tactic be applied to any other business?

-Nick

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If you’ve driven along 580 lately, perhaps you’ve seen this sign, protesting the construction of a giant new premium outlet mall.  The sign claims the planned Paragon Outlets hurts the local community.  How so? I wondered.

Image courtesy of http://www.arounddublinblog.com

The mall, which is scheduled to open in November 2012, is being built on a huge empty lot, not some protected national forest or even active farmland.  Construction costs will pump $162 million into the local economy, and the outlets are expected to generate over 2000 jobs when they open.  Sales tax receipts will bring in valuable revenue for the city for decades to come.

Looking over the list of stores (Barney’s, Sak’s, Michael Kors, etc), it’s pretty clear I won’t be shopping there, but I’m not sure exactly how a non-competitive retail construction project of this magnitude could hurt the community.

After some digging, I found out the group behind is the protest is a local carpenter’s union.  Their concern is that Paragon Outlets “fails to require their general contractor to use subcontractors that pay area standard wages and benefits.”

Substitute “market” for “area standard” and you have yourself a pleasant oxymoron.  By definition, subcontractors (or any employer) MUST pay market wages and benefits or else they wouldn’t have any employees!

The union’s literature also accuses the project of “KILLING OUR ECONOMIC RECOVERY” and includes an image of Death with a scythe.  A little dramatic.

-Nick

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WhatsYourPrice.com is an online dating website where “generous” suitors pay for dates with “attractive” singles.  It’s a business model that really stands out in a crowded space, and is the perfect example of the free market at work.

Customers browse the profile of prospective dates and bid cash for the privilege of taking them out on a first date.  I think once you get over the inherent awkwardness, it makes a lot of sense.

Both men and women can sign up in the “generous” category (but not surprisingly, it’s mostly guys):

What’s Your Price has been the target of criticism, with people calling it borderline prostitution and saying the women are basically hookers.  These people are wrong.

If there’s someone you really want to meet, based on their profile and picture, what’s $50 or $100 in the long run?  If that’s what it takes to stand out from the crowd and get noticed, what’s wrong with that?  It’s pretty much exactly Coca Cola does when it spends the big bucks to buy advertising time.  They can buy the airtime, but if the message doesn’t connect, they won’t sell any soda.  Your WhatsYourPrice bid only buys you a first impression; it’s a foot in the door, and nothing more.  And just like the ad that doesn’t connect, if your winning personality doens’t impress enough for a second date, you lose.

Now if it really works out, you’ll probably want to leave out the WhatsYourPrice details when you tell your grandkids how you met.  But a lasting relationship really is priceless, so I don’t see the problem in spending (or accepting) a few bucks initially to see if it’s worth pursuing.

WhatsYourPrice.com is social economics at its best.

Did You Know?

Their unique dating system is “patent pending” with the US Patent Office: Application No. 61407831.

If necessity is the mother of invention, I would guess the creator of WhatsYourPrice.com was a busy (read: un-attractive) but “generous” (read: rich) individual.  Indeed — enter former Fortune 500 executive and serial entrepreneur founder Brandon Wade:

-Nick

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Did you create a Google+ account?  Have you logged in since?

I just logged in the other day.  It seems like only a few people are posting anything, and half of them are Google employees.

-Nick

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I was scheduled to have arthroscopic shoulder surgery today, to repair the anterior labrum tear from my dislocation this spring.  But I’m at home instead, due to a fascinating series of failures to answer my one simple question:

“How much will this cost?”

In my mind, for a non-emergency procedure, that seems like a completely valid and reasonable question.  It blows my mind that people would just show up on their surgery date with no idea how their operation might impact their finances.

Like I wrote before, medical services suffer from a tremendous lack of transparency that drives up costs for everyone.  I can’t think of a single other big-ticket purchase where the cost is hidden from the customer until they’ve already “bought.”  No other industry does business this way.

But as reasonable as I thought my question was, I spent the better part of 2 days learning it was not.  Among the answers I received:

• “We won’t know until we see the exact codes the facility sends us.”
• “You’ve met your out-of-pocket max for the year so you are covered 100%.”
• “This facility is out-of-network, which is subject to a $2000 deductible, a 40% co-pay, and a $6000 out-of-pocket max.”
• “This facility is out-of-network, but as agreed to accept your in-network benefits.”
• “Your insurance should pay for the whole thing.”
• “I see in your file an out-of-network gap exception has been approved.”
• “There is no out-of-network gap exception approved.”
• “Don’t worry about it. If there’s trouble with the bill, just give me a call.”
• “$265.21″

It was a sick 4-way dance between me, the doctor’s office, the off-site surgery center, and the insurance company.  And every step of the way I was greeted with disbelief that a customer might want to know their expense ahead of time.  Within minutes of each other, 3 different United Healthcare employees, accessing the same information, gave me 3 different estimates ranging from $0 to $6000.  (Let’s just say I’m thankful they’re not the ones operating!)

When I got an answer I liked, I asked to get it in writing, which of course was quickly refused.  In this high-stakes guessing game, it became clear the only one with any liability was going to me.

So not knowing who to trust or believe, I had to cancel the operation.  How many people could just show up for something that “should” cost nothing but “might” cost up to $6000?  No thanks, I’m not a gambling man.

It’s frustrating because I wanted to get this done ASAP to maximize recovery time for ski season.  Hopefully we can get it all sorted out and taken care of soon.

For extra usefulness / hilarity / melancholy and the infinite sadness, United Healthcare provides a “cost estimator” tool on their website.  As noted previously, they’re supposedly the experts but they really have no idea.  So if you choose “Out of Network,” they literally leave a blank where you can fill in your own estimate:

Nice, maybe this is their new crowdsourcing campaign?  But seriously, if people knew the cost, why would they be using your Estimator tool?

Bah.

-Nick

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If you’ve shopped online at all in the past 4 years, you’re probably familiar with RetailMeNot.com.  The online coupon aggregator generates millions of page views each month and enjoys top Google ranking for almost every “_______ coupon” query.

This is a company that literally prints money — an estimated $30 million in 2010.  Most of their content is user-generated, they get loads of free traffic, and they earn commissions on thousands of stores across the web.  In 2010, RetailMeNot was acquired by Whale Shark Media for an undisclosed sum (some estimates go as high as $90 million!  At the time they had just 5 employees. Think about that, 5 employees, a microscopic cost structure, and $30 million in revenue.

My RMN beer coozy from CJU

But their success has not come without controversy.  Because anyone can post a coupon, some affiliates saw their “exclusive” codes being shared on the site, and quickly found out that in couponing-2.0, exclusive deals with stores didn’t mean much anymore.

One common problem for coupon sites is that the customer 9 times out of 10 is already at the store checking out.  All they need now is the money-saving code and they’re good to go.  But if the coupon site simply displays the code, they won’t get any commission on the sale.  It would be like giving the answers away for free.  That’s why you see all sorts of creative “click here to redeem,” “click to reveal,” “click here to see code” type statements — all of which work, but make sure to open a new tab for the store with RetailMeNot’s affiliate cookie set, which lets them get credit for the sale.  (It also overwrites any previous affiliate cookie.)

Personally I don’t have a problem with these types of calls to action — they’re obviously providing some value to customers so it’s ok for them to get paid for it.  Others call it dubious or unethical or cookie-stuffing.  These tactics have probably cost me thousands of dollars over the past few years, but it just means I should have done a better job closing myself.

The other controversial tactic is posting coupons that aren’t really coupons at all.  You’ll see this all the time with certain coupon sites advertising “free shipping — click here” — nevermind the store offers free shipping all the time anyway.   It’s purely an excuse to try and insert their affiliate cookie and make money on a transaction that was probably going to happen already.

How is it possible #2 only has a 50% success rate? Shipping is free on every order!

Still, nothing but kudos to the team at RetailMeNot — a very innovative approach to an old business model.  Maybe they push the envelope a little bit but while the other coupon sites complain, they’re busy laughing all the way to the bank.

-Nick

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If you’ve shopped at Safeway any time in the last few years, you’ve probably been asked to make a donation to some charity when you checked out.

Some shoppers get really offended by this, but each year Safeway raises millions of dollars for breast cancer research and a host of other causes.  In 2009, their total contributions exceeded $50 million dollars — definitely an awesome fundraising job!

Accounting

Safeway says they administer their donation programs with 0% overhead, meaning every dollar raised is passed on to the named charity.

It’s also a huge write-off.  Imagine a $50 million tax deduction, and the genius of it is that it was your customer’s money to begin with!

Some Math

I wonder what their “take rate” on customers making a donation is, and what that average donation might be.

In 2009, Safeway booked estimated revenue of $41,000,000,000, of which approximately $50,000,000 was charitable donations given by customers.  That means that about 0.12% of their revenue was donations.  Put another way, for every $100 worth of groceries Safeway sells, they collect $0.12 in donations.

This would seem to indicate that percentage-wise, very few people donate.  Let’s say the average donation is $2 (I really have no idea), and the average receipt is $30 (again, just guessing).  With these estimates, only 1 customer in 55 makes a donation.

(100/.12) = (x/2)  -> x= $1667

$1667 sales / $30 avg. order = 55.5 customers

Rounding It Up

On my last visit, I noticed Safeway implemented a new donation collection strategy — one I think will significantly increase the percentage of customers who choose to donate.

My grocery total was $xx.20.  Instead of relying on the easy-to-decline electronic checkbox, the cashier asked if I would like to donate $0.80 to muscular dystrophy, rounding my purchase up to the next whole number.  Appreciating the new strategy and having a fondness for round numbers, I agreed.

Back in the car, I thought about what had happened.  I almost never do the checkout donations, so what was different about today?

The key difference was not that donation amount was very small — a low committment — but that is was suggested by the cashier.

Consider a different scenario, in which the cashier asks if I would like to donate, and I agree.  When she asks how much to add to the bill, I reply, “$0.80 please.”  Now even though I’m making a voluntary donation I feel like a cheapskate.  But when it’s her idea, it’s a win-win.

I imagine this round-it-up strategy will greatly increase the percentage of customers who contribute.  The average donation will decrease (to about $0.50 right?), but maybe the volume of donations will counteract this.  Let’s say the take-rate jumps from 1 in 55 to 1 in 10.  Now Safeway is bringing in $0.50 for every $300 in groceries, which equals 0.16% of total receipts — a healthy increase over the 0.12% from before.

The charities get more money, Safeway gets a bigger write-off, and more shoppers can earn those warm fuzzy feelings they get for helping out.

-Nick

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Here’s an update on my experiment with peer-to-peer lending with Prosper.com.  The micro-loans have been active for 6 months, so it’s a good time to review the performance.

My Prosper numbers:

• Initial investment: $5000
• Interest payments received: $393.18
• Charge-offs: $25
• Net Gain (interest minus charge-offs): $368.18
• Approximate annualized rate of return: 14.7%

I’m pretty happy with that, even though I received my first charge-off since the last update.  The return is especially nice considering the same amount invested in the S&P 500 would have lost about 15.5% during the same time.

I have 204 active notes (loans) remaining.  Of those, about 6% are delinquent, so I will probably see some more charge-offs in the future.

One thing to be aware of is that Prosper.com has gotten rid of their Automated Plans and replaced them with a new option called Quick Invest.  In taking the 1-minute tour, Quick Invest seems really simple and similar to Automated Plans except you can see the notes you’ll be investing in beforehand.  You can read what each borrower plans to use the money for rather than investing blindly like I did with the Automated Plans.  (And if you prefer investing blindly, no one will force you to read the loan descriptions.)

I’m looking forward to seeing how the loans do the rest of the year and what happens with the delinquent notes.  While I hope these borrowers get their act together, the account is set up to be able to tolerate a certain loss ratio while maintaining a strong return.

-Nick

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