With Debt Forgiveness Offer, Sears Reduces Fear of Regret

Sears this week announced a new incentive program to convince consumers that it's safe to buy a major appliance, even if they're worried about losing their job. Wharton marketing professor Stephen J. Hoch, who directs Wharton's Jay H. Baker Retailing Initiative, says the offer is a variation of an age-old sales strategy that aims to assure people that they won't regret their decision.

The retailer says customers who use their store credit cards to buy at least $399 worth of appliances and related merchandise will be able to suspend their payments and keep the product if they become unemployed. Sears will credit one-twelfth of the purchase price to the customer's account for every month they’re out of work; those who are jobless for more than a year will have the full debt forgiven. Doug Moore, president of Sears' home-appliance unit, told Bloomberg News, “We thought this would be a way to get folks to jump in where they’d been a little reluctant.” 

In a similar marketing approach, automakers, led by Hyundai (see: How Hyundai Sells More When Everyone Else Is Selling Less),  has offered to let customers suspend payments and return their cars. Such offers, while currently wrapped in the fear created by the recession, are nothing new, says Hoch.

In his classes, Hoch uses another example from the Sears playbook: In its Chicago area stores, the retailer once offered to pay rebates to customers who bought snow blowers and were later disappointed because there was less snow than usual. If snowfall was less than 50% of the official average, customers would get a 50% rebate. If the snowfall was less than 20% of the average, Sears paid buyers a 100% rebate and let them keep the machine.

With such offers, Sears is making "an actuarial bet," says Hoch. The company determines how many of its customers are likely to lose their jobs, then accounts for those losses against the revenue from the additional sales. "People aren't going to try to get fired just to get a free appliance."

Hoch says the offer targets one of three specific groups of customers. Citing the snow blower model, he described these groups as "people who are going to buy a snow blower no matter what, people who are not going to buy a snow blower no matter what, and people who ask themselves every year if they should buy a snow blower -- but worry that they'll regret the decision if it doesn't snow very much." This offer speaks to the last group. "It's an insurance policy against feeling stupid after you make a big purchase."

Electric Super-car Builder Tesla Gets $465 million to Develop A More Affordable Model

The all-electric Tesla Sportster will go from 0 to 60 miles per hour in four seconds, reach a top speed of 125 miles per hour (it's electronically limited) and travel about 225 miles on a single charge (unless you test the acceleration frequently and cruise at the top speed). But at about $100,000, the car is beyond the reach of the average consumer. Last week, the company won a $465 million loan from the Department of Energy to accelerate development of a concept car it calls the Model S, which would carry a price tag starting at about $50,000. While that's still beyond the means of most car buyers, the price is heading in the right direction. Tesla said it will use about $100 million of the loan to build a manufacturing facility for the electric power train, which it will also sell to other manufacturers. The rest will be used to bring the Model S to market by 2011. An environmentally friendly automobile has long been one of several Holy Grails pursued by entrepreneur and Tesla CEO Elon Musk, who was the subject of a Knowledge@Wharton article and podcast in April.

Reaching China’s ‘Last Mile’

Economists say that in order to survive the global downturn and the resulting drop in trade, China will need to develop its domestic market. But some companies are hitting a wall when it comes to accessing rural China’s 2,812 counties, 35,000 towns and 640,000 villages. 

In a keynote address at the Wharton Global Alumni Forum in Beijing this month, Zhang Ruimin, CEO and chairman of Haier Group, said his company has made progress in this regard, but that it isn’t easy. Recognizing the “huge domestic opportunity” in China’s rural markets, the appliance manufacturer is “now exploring a way of combining virtual networks with ‘real’ networks. Virtual networks exist on the Internet; the ‘real’ network is the ‘last mile’ -- [on-the-ground] logistics, sales and service.” The modern supply chain technology that has helped companies like Haier establish a global presence won’t carry these firms into rural areas, where “electricity is expensive” and local political structures and policies can be particularly idiosyncratic.

In light of this, Haier has spent time building up “a huge [sales] network” in rural areas. “Many of our competitors have even asked us to be their rural sales agent,” he said. “Why? They don’t have the capability to serve every county and village…. Understanding the market is important. What kind of service are you going to provide? It has to be closely connected with the market.”

In India, a similar story is emerging. Because of the recent strong performance in the agricultural sector, companies are reshaping their products and services to cater to rural demand. As one expert told India Knowledge@Wharton, rural India is forcing marketers to rethink the traditional four P’s of marketing -- product, price, place and promotion -- and replace them with four A’s: Affordability, awareness, availability and acceptability. See: “Why Companies See Bright Prospects in Rural India.”

Oh, What a Feeling: Taking Charge at Toyota While It's Losing Money

Toyota founder Sakichi Toyoda's grandson, Akio, officially took over as CEO of the world's biggest automaker this week. At his first news conference today, Toyoda acknowledged that he and his management team "are beginning our voyage in a storm.” He's right about that. Like other automakers, Toyota has been rattled by the global economic crisis. The company lost $4.6 billion in 2008 last year and expects an even bigger loss this year. But Toyoda knew what he was getting into; his eventual ascension to the top spot was first reported in December. In an article titled "Biggest by Default: Toyota May Be Number One, But It Still Faces Challenges," Knowledge@Wharton described the difficult road ahead.

Raghda Shaheen: Bridging Two Worlds – America and the Middle East

Raghda Shaheen, who works for the Dubai International Finance Centre, recently completed a four-week business and legal fellowship program at Wharton and the University of Pennsylvania Law School. The program, funded by the U.S. Department of State Middle East Partnership Initiative (MEPI) and supported by America-Mideast Educational and Training Services (AMIDEAST), teaches management, business and legal skills to women from the Middle East and North Africa. This year, 22 women from 11 countries attended the program. Shaheen will spend the next three months working at the Chicago Chamber of Commerce before returning to the UAE. She spoke with Knowledge@Wharton about her experiences in Gaza City, Canada, the U.S. and the Middle East.

“I find a lot of stereotypes about Arab women that I would like to break and about Arabs in general here in the States, because [most people] receive their [impressions] from the media,” said Shaheen at one point during the discussion. “We all know that the media can be biased at certain times and does not reflect the correct image of the culture. So I came here to experience the American culture by myself through my [own] eyes, not through someone else’s eyes.”

The image that Americans have of Arab women, she added, is that they “may not be educated, that they’re suppressed, that they can’t work, they don’t speak, they are not cosmopolitan. So I try with [other program participants] to break that stereotype. We tell them that Arabs in general, not just women, usually speak two languages at a minimum. We speak English as a second language in my country. There are other places in the Middle East, such as Lebanon and Syria, that speak French as a second language. The exposure to the West is very high in the Middle East, probably because of the political situation and the geographical location of that area. So we already know about other countries and civilizations out there in the world.”

As for her impressions of life in America, Shaheen notes that “the media, to a certain degree, exposes you to the American streets, environments and buildings. So when we went to New York, most of us felt that we had there before. We saw the Brooklyn Bridge and the Statue of Liberty. You feel that you’ve been on the streets of New York even if you’ve never been there because you always see it on TV. So that’s what increasing the exposure; it’s the technology. Believe it or not, the political problems are playing a good part here because we have to learn about what’s happening out there in the world. Most of the political situation in the Middle East is highly related to the U.S. So that’s why we’re highly exposed and are learning a lot about you.”

To see the whole discussion, click here.

Middle Eastern Businesswomen Discuss Challenges They Face at Home and Abroad

Building a Modern Economy: How the 'Dubai CEO's' Big Bet Is Paying Off, for Now

http://knowledge.wharton.upenn.edu/article.cfm?articleid=1044

 The Legal and Business Fellowship Program: Wharton Executive Education

A Story That Would Have Been Immediately Dismissed a Year Ago

A recent tiny item on the Internet and the back pages of newspapers had potentially earth-shaking financial implications. It was also something no one would have believed possible -- until about a year ago.

Two men, allegedly Japanese, were “detained” in Italy as they attempted to cross the border by train into Switzerland. Inside their suitcase -- outfitted with a false bottom – was $134.5 billion in U.S. Treasury bills.

That is more than the GDP of Hungary, Chile, Pakistan or New Zealand. The find reportedly consisted of 249 T-bills worth $500 million each plus 10 $1 billion Kennedy bonds.

Headlines suggested potentially dire implications. "Suitcase With $134 Billion Puts Dollar on Edge,” noted a Bloomberg column on June 17, which went on to suggest that "the U.S. risks losing control over its monetary supply on a massive scale.” Another report noted the two mysterious men together might make up the fourth-largest U.S. creditor.

It turns out the bonds were fake,and the authorities suggested the Italian Mafia was involved. (Italian police had broken up a ring of criminals posing as financiers peddling $1 billion in fake bonds just a month earlier.)

Still, it took days to unravel the mystery and in the interim some of the mainstream media – not to mention countless blogs -- and many other observers were prepared to believe the $134.5 billion swindle was real. And why not? What would have seemed immediately preposterous before last September is, in this case, a small multiple greater than the Ponzi scheme that Bernie Madoff had been running.

More from Knowledge@Wharton:

Hope, Greed and Fear: The Psychology behind the Financial Crisis

The Bernard Madoff Case: Trust Takes Another Blow

After Dodging Many Bullets, Hedge Funds Are Back in Regulators' Sights

 In Praise of Working Alone (or in Very Small Groups)

“Workers don’t burn out just because they work too hard. Workers burn out because of people,” state Jonathan Littman and Marc Hershon, authors of a book titled, I Hate People: Kick Loose from the Overbearing and Underhanded Jerks at Work and Get What You Want Out of Your Job.

Among those who qualify as “jerks” and “oafs” in this book are the Stop Signs, “the naysayers who block your every idea”; the Switchblades, those underhanded jerks who take credit for your work”; the Flimflam “down the hall with a snarky tendency to trick you into doing his work for him”; and the Minute Man, “who steals your time in bite-size chunks that eat up your day.”

The solution, according to Littman, a contributing editor to “Playboy” and author of two books about computer hackers, and Hershon, a branding expert and comedy veteran, is to be a “soloist” -- someone who “is bold enough to create the attitude, space, and time to stretch [his] career and expand [his] life,” and who “deftly works alone or collaborates with just a handful of other talented people ... while artfully deflecting all the rest.”

The authors assure us that they “like and sometimes even love individuals. It’s people we hate,” and they cite several blogs and websites that support their views of the workplace, including Anger Central, Disgruntled Workforce and Team Building Is for Suckers.

For some other views of teamwork, see:

Is Your Team Too Big? Too Small? What's the Right Number?

'One for All' or 'One for One'? The Trade-off between Talent and Disruptive Behavior

Cricket Legend Sunil Gavaskar: 'The Biggest Challenge Is to Get the Team to Believe in Itself'  

Daisy Poon, President of Ajisen China: 'Teamwork Is Fundamental'

How Culture Affects Work Practices in Latin America

As SUV and Truck Supplies Dwindle, Consumers Fork Over Full Price -- in Texas, at Least

Much has been said about the Big Three American automakers' inability to adjust production in the face of shifting consumer demand. Such criticism was especially loud in 2008 as pump prices neared $4 a gallon in the United States. But now that Ford, GM and Chrysler have reduced production of those gas-hungry giants, what do you suppose consumers can't get enough of? That's right: trucks and SUVs. As The Dallas Morning News advised this week, "If you have your eye on a new SUV, don't blink. It might be gone."

Of course, report comes from deep in the heart of Texas, where pick-up trucks are typically more popular than in some other parts of the U.S., and the evidence it cites comes mostly from the mouths of Dallas area car dealers. They tell the paper that they "are selling [trucks and SUVs] for window-sticker prices. Moreover, most late-model used pickups and SUVs have regained all of the thousands of dollars in trade-in value they lost last summer." Sam Pack, who owns three Ford dealerships in the Dallas area, said that  "when you go through the inventory, you find we've got an 18-day supply of Expedition ELs. That's too low. It starts costing you sales."

Ironically, the Dallas suburb of Arlington happens to be the home of GM's only full-size SUV factory, which is in the midst of a two-month shutdown, according to the newspaper.

But the small inventories represent not only the automakers' response to plummeting demand, they may also represent the future of the auto business. Veteran dealer Ron Kutz thinks tighter inventories are probably good for the auto industry. "In the '80s, we ran a Nissan store off a 30-day supply of vehicles," said Kutz, general manager of Grapevine Dodge-Chrysler-Jeep. "There's no way GM or Chrysler should have 120-day supplies. It just makes no sense financially."

For the latest on the changing auto industry from Knowledge@Wharton, see:

How Hyundai Sells More When Everyone Else Is Selling Less

Bailout or Bankruptcy: What Will It Take to Get the U.S. Auto Industry Back on Track?

On the Skids: Are U.S. Automakers Running Out of Time -- and Options? (video, with transcript)

The Global Auto Industry: New Cars, Old Problems

A Post-layoff Morale Killer: The Cubicle Graveyard

Add vacant office cubicles to the long list of collateral damage wrought by mass layoffs. Lately, interior design firms see that as an opportunity during tough times. At the recent NeoCon World’s Trade Fair in Chicago, designers of office space say management would do well to come up with creative treatments for the "cubicle graveyard" phenomenon. In a presentation at the design show, architects from the California-based Genslerarchitecture and design firm discussed creative techniques for filling in what one described as “the void left behind.”

Chicago Tribune columnist Greg Burns was there, and offered this account: "Many businesses whacking employees in the fall and winter wanted only to survive another day. Now at least some are beginning to recognize that all that empty floor space presents an opportunity. Reconfiguring to make room for collaboration, socializing and shared learning can pay dividends relatively quickly, 'People are coming to their senses,' said Philippe Pare, a senior associate at Gensler. 'There is more acknowledgement of long-term perspective.' Reconfiguring to make room for collaboration, socializing and shared learning can pay dividends relatively quickly, Pare said. By attracting youthful talent and promoting innovation, he said, 'It can enhance your business.' No one said it’s an easy sell, as Gensler associate Doug Sitzes acknowledged: 'You’re being asked to not spend any money, but you have to do something,' he said. 'The answer may not be to just hunker down and hope for the best.' "

For more on managing layoffs, see these Knowledge@Wharton articles:

As Layoffs Spread, Innovative Alternatives May Soften the Blow

Half-a-Million Job Cuts: Is There a Strategy Behind the Layoffs?

Short-Circuited: Cutting Jobs as Corporate Strategy

'High Priests' of Rational Markets Question Their Faith

Despite their long-held belief in the "wisdom of crowds" theory of market behavior, a recent poll of British financial analysts found that 77% “strongly” or “very strongly” disagreed that investors in aggregate behave “rationally,” reports the Financial Times.

William Goodhart, CEO of The Chartered Financial Analysts (CFA) Institute in the United Kingdom, said the survey of the group's UK members showed a new mood of “questioning” in the aftermath of the financial crisis. The FT suggests, however, that these doubts reflect a wider "intellectual swing" away from the efficient markets hypothesis, which holds that asset prices reflect all known information and can change quickly in the face of new information. Indeed, about two-thirds of the CFA members said they no longer believed that market prices reflected all available information.

But even assuming that all market participants have access to all the information needed to make a rational investment decision, there is no certainty that such decisions can't be overruled by strong emotions -- such as fear or greed. Such emotions not only helped to lead America into the current economic crisis, but may also be helping to keep it there, according to a recent Knowledge@Wharton article titled, "Hope, Greed and Fear: The Psychology behind the Financial Crisis." The crisis began with a bubble, Wharton finance professor Richard Herring said in the article. "Bubbles occur when people are willing to buy something simply because they believe they can sell it for a higher price. [Bubbles] often have an aspect of mania."

More from Knowledge@Wharton on emotions and the economy:

We Are Smarter Than Me: How the Wisdom of Crowds Can Help Businesses Succeed

How Human Behavior Drives Investment Activity

President Obama's Plan for Overhauling Financial Regulation Expected This Week

Details of "the most sweeping reorganization of financial-market supervision since the 1930s" are expected Wednesday from President Barack Obama, according to The Wall Street Journal, which said it would "touch almost every corner of banking, from how mortgages are underwritten to the way exotic financial instruments are traded."

But even if regulators gain new powers, says U.S. Federal Reserve governor Daniel Tarullo, banks themselves need to be mindful of managing risk, according to The Journal's "Real Time Economics" blog. “As we recover from the crisis and the recession, we will likely be entering a new era in which systemic-risk regulation assumes much greater importance for supervisors,” Tarullo will say in prepared remarks to a banking conference, according to the blog. “But the role of bank management, and of risk management at banks, will also remain what it has always been -- to allow these institutions to play an effective intermediating role in a safe and sound fashion."

For more from Knowledge@Wharton on the future of financial regulation, see:

Getting It Right: Making the Most of an Opportunity to Update Market Regulation

Warning: Big Financial Firms May Be Riskier Than They Appear

Dear President-elect Obama: Here's How to Get the Economy out of the Ditch

Economists to Obama: Get the Government out of the Banking Business

A World Transformed: Panelists Look Beyond the Crisis

 

Drop in Euro Zone Industrial Production Shows Recovery Is in No Hurry

While many economists agree that a recovery my be near, most seem to think that there will be nothing startling about it -- and a euro zone industrial production report issued today supports that view. the Financial Times reports today that the 16-nation market's economic recovery hopes were set back by an unexpectedly sharp decline in industrial production in April, suggesting that the region's "recession is only slowly losing its ferocity."

Other regions, too, are feeling a roller-coaster effect from indicators sending mixed signals. In the United States on Wednesday, a Federal Reserve report said that economic conditions remained weak during mid-April through May. Conditions deteriorated in many regions of the country, the survey found, as commercial real estate and labor markets continued to struggle. Still, new claims for unemployment benefits have declined for several consecutive weeks in the U.S.

In an article in the most recent issue of Knowledge@Wharton, several Wharton professors expressed fairly pessimistic views about the recovery -- saying that positive growth may not be here yet, and that even when it does arrive, it will probably take several years for employment rates to return to so-called normal levels. Even if the U.S. gross domestic product turns positive by the end of 2009, they note, the economy will remain close to the bottom of the large trough that began in late 2007, with a long way to climb for jobs, home prices and other key economic indicators just to get back to where they were.

More on the economy from Knowledge@Wharton:

Deflation Fears: Could Falling Prices Let the Air Out of a Recovery?

Why Economists Failed to Predict the Financial Crisis

Hope, Greed and Fear: The Psychology behind the Financial Crisis

World Health Organization Declares a Swine Flu Pandemic

The swine flu epidemic has been elevated to pandemic status, the first global flu epidemic in 41 years. The World Health Organization raised its alert level for the A(H1N1) virus from phase 5 to 6, indicating a global pandemic, after a sharp rise in cases in Australia, which reported 1,263 cases today, and rising numbers in Britain, Japan, Chile and elsewhere. In an article last month, Knowledge@Wharton reported that academic observers had concluded that despite the fact that the virus was not as deadly as first feared, the urgent level of official and media response to the outbreak was appropriate (see "Has the Response to Swine Flu Been Too Feverish?"). "On the whole, I think if you have a new strain of the flu, you should be yelling about it," Arthur Caplan, director of Penn's Center for Bioethics, told Knowledge@Wharton. For the most part, he said, the aggressive response by public health authorities was worthy of praise. "I find it irresponsible for people to say it was overhyped or that people didn't react in a responsible manner." The article also noted that the virus was spreading and was expected to migrate to the southern hemisphere, where autumn will soon yield to winter, the flu's favorite season. As long as the virus remains active, health officials warned, it threatens to mutate into something more deadly.

Apple's $99 iPhone and Palm's New Pre Heat Up the Smartphone Battle

The contest for market leadership among today’s smartphone makers recalls a similar battle years ago in which Sony’s Betamax locked horns with JVC’s VHS system in a quest to become the industry’s standard format for video tape players.

Today’s battle for dominance in the smartphone market, however, involves many smartphone makers and even more competing operating systems. Apple’s latest effort to gain an upperhand is a $99 iPhone with video recording abilities and a battery which, Apple claims, lasts 50% longer than the battery in older models -- or up to nine hours.

Also just introduced: Palm’s Pre smartphone, offering an entirely new operating system dubbed "webOS," which has received rave reviews. Other key market players include BlackBerry and Nokia.

Consumers, as usual in these market wars, are the big winners as the lower-priced iPhone shows. But some big questions remain, including whether these increasingly smart devices can eventually substitute for PCs in large numbers, and whether a single standard will emerge from the various operating systems.

At present, no single operating system meets all the needs of consumers, enterprises and developers, say Wharton experts. Over time, the differences in the operating systems may fade as more unified platforms across different browsers and operating systems rise up, in much the same way that successful Internet browsers ultimately became usable across computer operating systems.

One thing seems clear, however: The smartphone market is at a tipping point and is evolving from the realm of a niche product to a game-changing, mass market item. Learn more about what Wharton experts think about where the smartphone phenomena is heading in this article: “As Smartphones Proliferate, Will One Company Emerge as the Clear Market Winner?”

Additional Reading from Knowledge@Wharton

The Net Impact of Netbooks? It Depends on Who Uses Them for What

A Chairman to Put the 'New' in the 'New GM' 

By naming former AT&T chief executive Edward Whitacre Jr. to be its next chairman, General Motors today underscored its mission to emerge from bankruptcy as a very different company than the one that squandered its dominant position in the U.S. auto market, says Wharton management professor John Paul MacDuffie, who co-directs  the International Motor Vehicle Program. "GM's decline over so many years happened under the watchful eyes of the current board, and ... there really need to be some changes in that governance structure," MacDuffie said. "It's kind of consistent with some of the other sweeping changes that they would want to bring [in] a new perspective." Use the player below for a recording of MacDuffie's comments.