Taking swift action, the management derecognized the pilot’s union and has also fired a few of the agitators. The strike has been declared illegal by the Delhi High Court. But the striking pilots have refused to buckle. Meanwhile, Air India’s Executive Pilots Association (EPA) is supporting the agitators, and private airline Jet Airways’ Society for Welfare of Indian Pilots (SWIP) has also asked for the reinstatement of the fired Air India pilots.

This ongoing agitation has only added to the woes of the cash-strapped airline. Just last month, the government cleared a US$5.75 billion bailout for the ailing carrier and is now unwilling to pander to the striking pilots. Talking to a television news channel recently, Ajit Singh, union minister of aviation, noted firmly that the pilots need to consider that Air india “is already on the sick bed and should not go to the ICU [intensive care unit].”

Singh went on to say that all employees and all unions have to co-operate in an effort to make Air India stand on its feet. He warned: “Otherwise it will not stay afloat. They have to realize that if they do not rise above their personal interests, then Air India will sink, and with that all of them will sink.”

Talking to daily newspaper Mint, Craig Jenks, head of Airline/Aircraft Projects Inc., a New York-based air transport consulting and advisory services firm, noted that “the Air India strike reflects a franchisee mentality among pilots, a confidence that they can control outcomes to their advantage without fear of competition. The government has encouraged this through the bailout.”

G.R. Gopinath, founder of Air Deccan, India’s first low-cost airline which was later acquired by Kingfisher Airlines, says that the government “must find the political will to look beyond Air India.” In a column in the daily newspaper Times of India, Gopinath notes: “[The government] must create a vibrant aviation sector and spell out a long term strategic vision for all stakeholders. A robust ecosystem is needed, not individual policies to suit Air India or Jet Airways or Kingfisher Airlines, as has been the case with successive governments.”

Indeed, even as Air India’s problems are compounding by the day, the entire Indian aviation sector is under stress. The rising cost of aviation turbine fuel, service taxes and high airport charges have been affecting almost all airlines adversely. In fact, even as irate passengers were trying to cope with the Air India cancellations, pilots of another beleaguered airline, Kingfisher Airlines, owned by liquor baron Vijay Mallya, decided to go on strike. They were protesting against delayed salaries.

While Mallya has been talking of bringing in foreign investment, industry observers don’t expect it to happen any time soon. They point out that the proposal to allow 49% foreign direct investment (FDI) by foreign airlines is unlikely to be cleared in the current parliamentary session, which will end next week.

Rajesh Chakrabarti, assistant professor of finance at the Indian School of Business, points out that “the current crisis has probably brought to a head what was inevitable at Air India. Its timing with the Kingfisher woes has made things worse for passengers.” According to Chakrabarti, the striking pilots have a valid cause. He notes that while court strictures will force them to resume duties in a few days, it will not be a long-term solution. Says he: “Air India must have a round of serious reorganization in order to be viable. On the other hand, the industry will probably see some inevitable rise in passenger fares to ensure survival, as well as some consolidation.”

According to Jan Zalewski, South Asia analyst, IHS Global Insight, India’s aviation sector is in a paradoxical situation. In a recent report, he notes: “Despite double-digit growth rates of passenger air traffic, five out of six private domestic airlines in India posted huge losses over 2011; this paradoxical situation is partly due to high oil prices and a depreciating rupee, but more importantly the losses are due to the highly restrictive and unfavorable operational environment for domestic airlines in India.” He adds: “Unless the government adopts more favorable aviation policies that would allow airlines to fly domestic routes profitably, there is likely to be a shortfall in capacity by 2020 which would thwart growth in the sector.” Zalewski says that foreign airlines bringing in FDI could help provide domestic airlines with cash flows, but this is unlikely to be a game-changer. “Even if working capital is raised, this would mean that, at best, real financial recovery would occur slowly.”

Apparently, such a blanket, imposed-from-the-top prohibition isn’t the best approach, suggest some Wharton faculty.

Wharton operations and information management professor Maurice Schweitzer suggests the idea of a retreat instead. “A retreat takes people out of their environment and away from the usual distractions and allows people to think differently. If a retreat is too hard, then try something else that gets people out of their routines.”

Many employees “feel compelled to ‘keep up,’ and will [worry] that taking time to unplug will merely put them behind schedule,” he says. In that case, managers might have to revert to a top-down command role. They could, for example, “require … and coordinate a specific time … when [certain groups of people] shut down their email, turn off their phones and spend time unplugged. For this to work, managers may need to penalize anyone caught on e-mail or on the phone.”

Like most people who have studied this issue, Schweitzer says it should never be a one-size-fits-all approach. “The importance of ‘unplugging’ will vary across areas. For managers, strategic thinkers and anyone doing creative work, getting unplugged is critical. These people may do well taking time to go for a walk” as a way to escape the digital grind.

The problem of workaholic societies – empowered by the digital world – isn’t going away any time soon. As a recent Knowledge@Wharton article pointed out, the typical workday no longer ends at 5:30. With smartphones, tablets and laptop computers, “we have become … intravenous hookups to our jobs. Not only do we have difficulty maintaining personal boundaries with work because our lives and jobs are so enmeshed with technology, but we also feel intense pressure from our organizations to be ‘always on’ and immediately responsive to calls and emails outside of normal working hours.”

But even companies – ranging from Deutsche Telekom to Google  to Vollswagen — are waking up to the fact that it’s unhealthy for employees to be tethered to the job. It can make for a less productive, highly stressed workforce that may be able to return more emails per minute than ever before, but has lost the ability to concentrate for long periods of time or step back from the clutter to come up with new ideas.

Pico Iyer, in an opinion piece in The New York Times last December called “The Joy of Quiet,” wrote that two friends of his “observe an ‘Internet sabbath’ every week, turning off their online connections from Friday night to Monday morning, so as to try to revive those ancient customs known as family meals and conversation.”  

What’s clear is that one size doesn’t fit all when it comes to finding the best way to disconnect. Stewart Friedman, a Wharton practice professor of management, agrees that universal prescriptions don’t work. Instead, he says, “ask work groups to come up with their own proposals for experiments — time-limited for a month, for example –along with credible means for evaluating whether or not the experiments are working.”

And not everyone in that work group should be forced to do the same thing, he adds. “The group can decide ,and then monitor, who gets to do what. For example, one employee gets to leave on Fridays at 5 p.m. while another comes in at 10 a.m. on Mondays, and so forth.” Measuring the impact of such an approach is critical. “If you’re part of a sales team, for example, ask how your sales numbers are doing after a month of this experiment.” 

Addendum: Discussion of digital shutdowns leads to a Knowledge@WhartonToday pet peeve: Going into our local yogurt store and seeing parents glued to their smartphones while their four-, five- or six-year-old kids are silently eating their chocolate/vanilla soft serve and staring at the wall. Assuming that the child is not busy on his or her own device (and most of the ones we see are not, despite anecdotes about toddler technology geniuses), how about redrawing this picture? For parents, a rare moment alone with their child doing something fun together used to be called their “quality time.” Now, all too often, it seems to be their “digital time.”

As the smoke clears from recent elections in Europe, and as important as the election of Francois

Knowledge@Wharton: Professor Allen, how would you characterize the significance of Socialist Francois Hollande’s recent victory in the French presidential election?

Franklin Allen: I think there are a number of reasons for his victory. In the end, the result was quite close. If [outgoing French President Nicolas Sarkozy] had not been so personally unpopular, he probably would have won. So it is not clear the election result is a rounding endorsement of Hollande’s policies. Nevertheless, clearly these did play a part and they are a move away from stark austerity. The lowering of the retirement age back to age 60, the increase in the minimum wage and other measures will cost money. The 75% tax on incomes over a million euros won’t be enough to pay for this. So, the question is where will the revenue come from, and are the deficit targets required by the European Commission (EC) realistic anymore?  I don’t think we have enough information to judge at the moment.

Knowledge@Wharton: Support for austerity is fading fast across Europe. Even Olli Rehn, the European Union’s top economic figure, now says euro countries may need to loosen some of the strict budget limits already agreed to. But what other specific policy changes might actually make a difference — what tools does Hollande have to wield in France realistically, for example?

Allen: Yes, this is the problem. If you don’t spend money, then the kind of restructuring of the various markets that [pro-austerity officials] talk about take a long time to have an effect. This is why Hollande wants to change the ECB [European Central Bank] mandate and allow them to do quantitative easing directly. But I doubt the Germans will yield on that.

He says that the ECB should introduce pro-growth measures in addition to making cuts in government spending, and that the ECB should lend directly to governments, rather than through the banks. One of his aides also mentions eurobonds as a help.

How much would these measures help? In the short term they may help. But I do not think they will help in the long term. The problem is that the way they achieve their effect is to distort prices. The housing bubble is an extreme example. They create problems for the future in my view.

Knowledge@Wharton: What other measures could Hollande realistically take – at either the euro-wide level or the individual country level?

Allen: He can go after the rich in a much more emphatic way.  One policy that has not been raised, because the governments have been center right, is a one-off wealth tax to get the debt down. I think this may be something the French Socialists move towards. Greece is the more interesting election result at the moment. The troika has basically hurt the center there. [The troika includes the EC, the ECB and the International Monetary Fund (IMF).]

We will see what happens in the next election in a few weeks. But if [Alexis Tsipras, head of the far-left Syriza coalition in Greece that came second in the election] wins, they will default and leave the eurozone. This will be a major problem for [Angela Merkel, the German chancellor] and for the IMF because this time the default will be against the official sector. Merkel will have to explain to German voters why tens of billions of euros have been lost. The IMF will have to explain why they are in the business of transferring money from poor countries around the world to rich European ones. Neither will want to do this, and Tsipras knows this. He will be in a much stronger negotiating position.

Many observers predict, however, that Hollande will be too hemmed in by eurozone debt and critical political relations with Germany to usher in large changes. Yet, if Greece drops out of the eurozone, as many believe is increasingly possible, then all bets are off. In that case, Hollande would gain a huge bargaining advantage over Germany in his efforts to tamp down austerity policies and introduce more growth-oriented policies within the currency union.

Wharton management professor Witold Henisz discusses these and related ideas with Knowledge@Wharton in this podcast:

To read more about the latest developments in Europe, see our special report: “Europe Struggles to Hold Itself Together.”

Cafes have the potential to become big business in India. The entire restaurant sector is growing rapidly at around 25% annually, according to a National Restaurant Association of India (NRAI) white paper. But the cafe segment is growing faster at 30% to 35%. This is even before the entry of Starbucks and Dunkin’ Donuts, which should catalyze further demand. “Cafes or coffee shops are a relatively recent phenomenon in India,” notes the NRAI paper. “There are more than 1,500 coffee shops in the organized segment, spread all over the country and of which 50% are accounted for by just two companies [Café Coffee Day and Barista].”

Dunkin’ Donuts, however, aims to be more than a coffee shop. Its branding in India is Dunkin’ Donuts & More, a designation that is unique among the 32 countries (10,000 restaurants) where the company currently has a presence. “We believe Dunkin’ Donuts will occupy the sweet spot in between cafés and quick service restaurants, as we offer elements of both,” says Amritesh. “[It has] a great all-day menu of food and a fantastic range of beverages, along with a chilled out, modern and relaxed environment.”

The “& More” in the positioning statement indicates that the company has learned from the experience of other international chains that have previously tried to break in to the Indian market. The world over, Dunkin’ mainly features donuts on its food menu, with a few breakfast options. In India, however, there will be a whole range of sandwiches and a large number of new flavors in donuts — mango and lychee, for instance.

When Kentucky Fried Chicken (KFC) came into the country in 1995, it arrived with an identical menu to what was available elsewhere. Kellogg launched its cold breakfast cornflakes in India, unmindful of the fact that the nation’s consumers preferred their breakfast hot. Kellogg languished for more than a decade. KFC ultimately had to set up shop, in part due to anti-multinational agitation (It has reopened since.)

By contrast, McDonald’s quickly adapted to local palates. It introduced items that fit local palates, like the McAloo Tikki (a potato burger minus meat and even onions). These items are now being added to the fare in other countries. By adding the variety — sandwiches, milkshakes, smoothies and other yet-to-be-decided snacks — Dunkin’ hopes to hit the ground running.

Dunkin’ Donuts comes to India in a joint venture with Jubilant FoodWorks. The Indian partner already has a similar agreement in place with Domino’s Pizza. As of December 2011, the company had a network of 439 Domino’s Pizza stores. Dunkin’ is looking at opening 10 stores in 2012-2013 with another 100 the next year.

The two partnerships complement each other, notes Jubilant chairman Shyam Bhartia. “India is a key strategic market with immense potential for growth in the food service business,” Bhartia said at the launch. “Our team has been working very hard over the past year to come up with a differentiated value proposition and the result has been very gratifying.” Indians are now ready for a new menu and a new lifestyle he said.

KnowledgeToday: Is it realistic to think that borrowers can come up with 20% in today’s economy?

Todd Sinai: Thirty years ago, a 20% down payment was the norm. Where did borrowers come up with that down payment? They saved, and their parents chipped in. Both tactics are more difficult nowadays. The return to saving is much lower than it has been historically, making it more difficult to accrue a down payment. And, given the recent turmoil in the financial markets, parents are less likely to feel financially comfortable enough to contribute to their children’s down payments. For these reasons, it will take borrowers longer to accrue their down payments than it did in the past, slowing the transition to first-time home buying. Borrowers will also compensate by buying a less expensive first home, reducing the amount of down payment they need to come up with. But it is unrealistic to think that borrowers cannot come up with 20% down payments. If that is what it takes to buy a house, they will do it, however slowly.

KnowledgeToday: Do you believe this is the market model going forward, or is it likely to change anytime soon?

Sinai: I don’t think anyone ever went wrong betting on bankers lending money! Lower down payments will surely return. There is a demand for high LTV [loan-to-value ratio] loans [for credit-worthy] borrowers who simply have not been able to amass enough equity for a 20% down payment but who have the incomes to support the debt service. That demand is especially strong because the return to saving is so low — making it hard to accumulate a down payment — and the cost of borrowing is so cheap. Even if lenders charged a sizeable risk premium for high LTV loans, the absolute cost of borrowing would still be historically low. I expect that lenders will grow ever more comfortable with the risk of lending in the wedge between 80% and 90% LTV and will be happy with the yields they are able to obtain.

The open question is: How long it will take for higher LTV loans to become widespread again, and how far down the credit-quality distribution will those loans be made? They already are available for good borrowers in stable housing markets. Hopefully, lenders will have enough discipline that high LTV loans do not become as widespread as they were in the mid-to-late 2000s, though.

KnowledgeToday: What kinds of changes do you think could most help the ailing housing market?

Sinai: If the demand for housing grows, house prices will rebound. And the bottom line is that demand for housing — for a roof over your head and space for your family — is dependent on employment and income. So the surest way to recovery in the housing market is economic growth and a stable job market. A rebounding economy will first be reflected in the rental housing market — people are still skittish about the permanence of buying a home — and we are already seeing that growth in apartment rents in many cities. Eventually, those renters will become home buyers. Even though the owner-occupied housing market is being handicapped by frictions in the lending market and some reluctance on the part of households to buying, enough growth in the underlying demand for places to live will improve the owner-occupied market nonetheless. And that improvement consequently would mitigate the hurdles of liquidity and buyer skittishness.

That approach begs the question of what policies could improve economic growth — and whether growth is possible in the absence of an improving housing market. By contrast, the policies that have been proposed to jump-start the owner-occupied housing market and clear up households’ balance sheets — for example, allowing for refinancing of under-water mortgages — aim to bootstrap the economy by improving the housing market, which will lead to greater economic growth, which in turn would better the housing market even more.

Should a policy start with the chicken — the economy — or the egg — the housing market? In practice, they are not mutually exclusive. Policies aimed at promoting employment and income growth and policies aimed at the housing market are complementary, and the choice of policy should be guided more by “bang for the buck” rather than by whether it works through the housing market or the broader economy. However, given the long time horizon of housing investments, any housing policy or fiscal stimulus should be permanent rather than temporary.

This post is by Kendall Whitehouse, Wharton’s director of new media.

To no one’s surprise, the highest-grossing movie this weekend was Marvel Studio’s The Avengers, which brought in more than $200 million in the U.S. The Avengers seemed destined to generate a box office bonanza. After all, the film brings together characters from a series of previous films which grossed a total of nearly a billion dollars — Iron Man in 2008 ($318,412,101), Iron Man 2 in 2010 ($312,433,331), Thor in 2011 ($181,030,624) and Captain America: The First Avenger in 2011 ($176,654,505) — not counting the two previous films starring the Hulk.

Disney’s Marvel Studios has been preparing the audience for The Avengers for several years. Many of the films cited above featured extra scenes following the closing credits with Samuel L. Jackson as S.H.I.E.L.D. director Nick Fury alluding to “the Avenger Initiative.” Clark Greg’s “Agent Coulson” appears in several of the films, providing character continuity leading up to The Avengers. In Thor, there’s a brief appearance of a character played by Jeremy Renner, who is listed in the credits as Clint Barton. Fans would recognize that character as the Avengers’ Hawkeye.

All of these maneuvers may seem like typical Hollywood marketing ploys: Team up the characters from several successful films into one big event movie, build marketing teases into the earlier films and throw in a crossover character or two. But Hollywood has nothing on the comic book industry, which is a font of marketing techniques based on clever storytelling strategies. Comic books have explored — and exploited — narrative structure like no other medium. These techniques — which include such things as multi-issue story arcs, crossovers, team-ups, reboots and multiple title tie-ins to “maxi-story” series — sell more comic books, but in the process, they may have also blazed a trail for new forms of complex storytelling.

The team-up, as illustrated by The Avengers, brings together multiple superheroes in a single story. Before this weekend’s blockbuster film, The Avengers comic book — introduced by Marvel Comics in 1963 — brought together a superhero team comprising many of that company’s most popular characters. Before Marvel’s Avengers, there was DC’s Justice League of America, a superhero team-up which first appeared in 1960. And, before that, DC Comics assembled the Justice Society of America, which first appeared in 1940.

Then there is the guest appearance, or character crossover — when one superhero appears in the comic book title of another character. When Spider-Man was given his own comic in 1963, Marvel’s most popular superheroes at the time, the Fantastic Four, made a guest appearance. When introducing a new comic book, why not get fans of your most popular characters to give the issue a look? Over time, nearly every combination of superheroes has been featured in one or more cross-title stories.

Expanding the Narrative Form

Throughout the history of these narrative techniques, the story structure of comic books continuously evolved.

Early comic books typically contained short vignettes with one or more self-contained stories in a single issue. Within a few years, storylines commonly stretched across multiple issues, and by the end of the 1960s, multi-issue tales were the norm. Many of these individual techniques are found in other media, of course. For instance, movie serials and television series excel at multi-chapter storytelling. Examples of all these techniques could be cited in film, television and the written word. Yet comic books have honed and extended many of these techniques to a greater extent than most other forms.

The pinnacle of this expanding narrative form is the multi-title “event” series like DC Comics’ various “Crisis” series and Marvel Comics’ recent “Fear Itself” series. Here, the narrative extends beyond the titles in the main series, with the story spreading across additional “tie-in” titles. Marvel’s “Fear Itself” consists of a prologue comic book; a seven-issue limited series containing the core narrative; dozens of tie-in story elements in Marvel comics such as The Avengers, Hulk and Iron Man; as well as numerous “Fear Itself” one-shot titles, multiple epilogue stories and “The Fearless,” a 12-issue spin-off miniseries. To take in every aspect of this extended tale would require reading somewhere in the neighborhood of 146 individual comic books.

The story has now become a world unto its own that allows the reader to explore whichever dimensions are of the greatest interest. Follow the events from the perspective of Iron Man or Thor. Or just peruse the core series and ignore the supplementary story elements. The series presents a nearly unbounded narrative universe for the reader to experience.

It is easy to interpret this with a cynical eye as nothing more than a series of cheap marketing tactics designed to pump sales. And yet, when well executed, something larger emerges.

New Forms of Storytelling

At the extreme edge of these techniques, such as the multi-title story events, new forms of storytelling begin to emerge. These extended series give rise to tales that can be viewed from multiple perspectives — from within a single title or across multiple titles, each with its own story arcs. Although all are contained within the form of comic books, these are techniques that are being explored in new media forms such as the transmedia storytelling, which unfolds a single narrative across multiple types of media, and alternate reality games (ARGs), which use the real world as the platform for complex storytelling.

Much of transmedia storytelling and ARGs are similarly marketing focused — using websites, Twitter feeds and real-world games to promote movies and television programs. But many observers believe these forms of storytelling will come into their own as new formats for complex, layered, multi-faceted tales.

It may well be that, as new forms of storytelling like transmedia and ARGs develop, we’ll look back at these comic book techniques as the vanguard in the evolution of new narrative structures. Born of ploys to sell more comic books, these techniques are giving rise to new forms of creative storytelling.

For a more detailed discussion of this topic, see “Media Marketing and the Evolution of Narrative Structure” in Whitehouse’s blog, On Technology and Media.

“This could be a major step in the likely application of ‘crowd-sourced everything’ to consumer credit,” says Wharton business and public policy professor Jeremy Tobacman. “Card issuers, craving gimmicks that will help them attract attention and stand out in the genuinely cutthroat competition for new accounts, could view this as an interesting marketing salvo.”

Billed by the company as the first “crowd-sourced” credit card, the product has been in pilot testing since December and opened to the general public last month. It comes with an 8% APR that applies to all balances, including purchases, transfers and cash advances. There’s no annual fee and the international transaction fee is 1%.

In addition, customers won’t have to pay a penalty APR if they default. New regulations have made it “extremely limiting to make meaningful money using [penalty] repricing these days,” says Jared Young, senior director of consumer markets for Barclaycard. “And when we were developing this product, we were looking for aspects of credit cards that are often complicated to explain to the customer. Even if [these features] made us a little bit of revenue, we decided to pull them out and make it as simple as possible.”

The card’s website is unclear about exactly what type and level of influence card holders will have, but screenshots from the card’s media site show a sample profile page that displays Foursquare-style badges awarded to a consumer for switching to paperless billing and referring friends; a sample discussion page with a query for users about how active community members should be rewarded for their efforts, and a community stats page with information including the number of accounts, the percentage of members in good standing and the number of posts and questions answered in the online community.

Young says the company is open to card holders having a high level of influence — but within a framework based around the profitability of the card. “There are a lot of different places we can go. Everything online is up for grabs, but we have to provide a framework — we can’t give away the farm,” he says. “There’s going to be a trade-off with all of the decisions that are made. If there’s a feature the community wants to build, we’ll share [information about] the expense of actually building it, and discuss how to fund it.”

Another feature of the card is that it gives community members a look at aspects of the card’s profit and loss (P&L) statements. Tobacman warns that those numbers “will be subject to a lot of assumptions that most cardholders won’t be able to evaluate.” Young acknowledges that it would be “very difficult” to report the profits of a specific portfolio. “For example, we have taken out some of the accounting treatments we’re required to put into [financial] statements because it’s so confusing,” he notes. “We’ve treated the P&L on a more cash flow basis, created a good-faith estimate of P&L and created a rewards program based on how well that P&L performs.”

The Giveback rewards program is billed as a way for card holders to share in the profit. But the card’s terms and conditions note that “this profit sharing feature is not based on the actual profits of the program. Instead, the Giveback program contains a transparent calculation that is used to determine what will be shared with the community members and which may or may not approximate actual profits.” But Young notes that the company is hoping to use the level of consumer control over how the Giveback funds are used to build trust with card holders.

Young declined to say how many people have signed up for the card so far (although he noted that the figure would be available in the first month’s profit and loss statement). He said engagement levels from the card holder community have been strong, but noted that “in almost all online communities, including Wikipedia, the law of participation is usually that 90% of people just kind of come in and read, 9% occasionally add content to the site and 1% of the community is really engaged and drives most of the volume. We’re not expecting anything different.”

But will the social aspect of the card encourage consumers’ decision making? Tobacman says that remains to be seen. “Consumers at some point could come to realize that they will feel especially guilty about defaulting on their credit cards if they have shaped the terms and they think that other card holders’ rewards are at stake,” he notes. “If consumers realize this after signing up for this card — as Barclays may dream — they will repay even in very tough times. If consumers realize this before signing up for this card, maybe they will conclude social networks are better used to sustain the self-control to avoid getting into debt in the first place.”

On May 3, another Indian firm, Cipla, slashed prices of its sorafenib drug from Rs. 28,000 (US$519) to Rs. 6,840 (US$126) for a month’s treatment — a 75% reduction in a single move. Cipla has also sharply reduced the price of its lung cancer and brain tumor drugs by around 60% to 75%.

According to Yusuf Hamied, chairman and managing director of Cipla, this price reduction is a humanitarian approach by Cipla to support cancer patients. Talking to business daily The Economic Times, Hamied said: “Yes we are cutting prices; we are being humanitarian. But, at the same time, we are not doing any charity. Doctors in India link the quality of drugs to the price of drugs; we want to remove that misconception.” Cipla, incidentally, is currently contesting a patent infringement suit filed by Bayer over its generic version of Nexavar.

Observers say that Cipla’s expertise in reverse innovation and its economies of scale play a key role in its ability to reduce prices. They see this recent move as being part of Cipla’s strategy to garner a larger share in the growing oncology market in India. “It’s a smart move by Cipla. It will reach many more patients and will also be able to garner a greater market share,” said Anjan Sen, director – health care at Deloitte Touche Tohmatsu India, talking to The Economic Times.

This is not the first time that Cipla has been a price warrior. Some years ago when global pharma companies were selling anti-retroviral drugs for US$10,000 to US$15,000 per patient, per annum, Cipla priced its drugs at around US$350. At that time, Hamied had said: “AIDS is going to be a bigger holocaust in India than an earthquake. We’re not making money, but we are not going to lose money, either.” Cipla’s move compelled other players to lower their prices as well.

Ravinder S. Singha, managing director of FirmLink Pharma, a New Delhi-based pharmaceutical consultancy firm, notes that “this is history repeating…. Cipla’s current step to reduce the prices of its cancer drugs is a replay of what it did with its HIV drugs. Others will have to follow suit.” Singha believes that neither Natco nor Cipla will be incurring any loses at their price points. “This only goes to show how much global multinationals play around with prices,” he adds.

But this time around, it’s not just the global pharma firms that are concerned. Indian firms like Natco, too, have been caught unaware. Natco is expected to launch its version of sorafenib shortly. “As of now, we are sticking to our price of Rs. 8,800, as mentioned in the compulsory license. Over the next couple of days, we will weigh our options and take whatever steps we think are necessary,” says M. Adinarayana, Natco’s company secretary and general manager, legal and corporate affairs.

Adinarayana sees Cipla’s move as a knee-jerk reaction to counter Natco’s low-priced version of Bayer’s Nexavar. He adds, however, that “it is not healthy competition. This price war is going to be embarrassing.”

Singha of FirmLink Pharma points out that the pharmaceutical industry, like any other, is driven purely by business compulsions. “We will see a lot more price wars going ahead,” he says.

Meanwhile, the markets have given a thumbs-up to Cipla’s move. While the broader market plunged 1.87% (or 320 points) on May 4, Cipla was one of the few gainers — up 2.46%. Natco was down by close to 6%.

Meng believes that world peace can be achieved — but only if people cultivate the conditions for inner peace within themselves. Inner peace, in turn, comes from nurturing emotional intelligence through the practice of mindfulness and meditation. Working with Zen masters, meditation teachers, psychologists and even a CEO, Meng created a seven-week personal growth program named — what else — Search Inside Yourself (SIY). Launched in 2007, Google has had more than 1,000 employees go through SIY with startling results. Participants rate the program at 4.7 on a five-point scale. Anecdotal feedback, among other comments, from many participants is that this program “changed my life.”

Meng then decided to open-source the SIY program by making its principles and components available to companies everywhere. He has written a book titled, Search Inside Yourself: The Unexpected Path to Achieving Success, Happiness (and World Peace), which is being published this month. Meng spoke with Knowledge@Wharton about the SIY program, why emotional intelligence matters, and other lessons he has learned during the past five years as Google’s Jolly Good Fellow (which, seriously, is his job title).

Listen to a podcast of the first part of the interview here. (A transcript is available as well.) 

Part Two: How Emotional Intelligence Can Help Resolve Conflicts and Build Tough, Kind Leaders

Part Three: How Emotional Intelligence Helps the Bottom Line

Wharton experts see both as smart responses from an agile company in an evolving market. “It’s a tweak to a business model. But it is a natural progression,” says Wharton marketing professor Peter Fader. “The whole idea of s-commerce or subscription-commerce is becoming increasingly popular. Plenty of other software providers have made moves in this direction or spoken about it (e.g., Oracle and SAP). You don’t tend to see it quite often at such a high price point, but it is no less sensible at that price point than it is for more mundane items and services.”

For Adobe, s-commerce could mean more than a marketing play. The company is still smarting from losing a battle last year with Apple. Late Apple CEO Steve Jobs banned Adobe’s Flash multimedia platform from Apple iOS devices, calling it unreliable, insecure and a battery suck. Adobe countered Apple’s claims, but last November the company announced that it would cease developing the media player for mobile devices and instead focus on the HTML5 technology that Jobs championed. The company last year also shuttered a business unit aimed at information technology departments and overhauled the business model for its Creative Suite software, as a Wall Street Journal article recounts. “If you’re going to make a left shift, you don’t increment your way there,” Adobe CEO Shantanu Narayen told the Journal.

Wharton new media director Kendall Whitehouse says “it’s worth noting how flexible Adobe Systems has been in terms of both product focus and business model over the past 30 years.” He recalls the company starting by selling its PostScript software to printer manufacturers even when that was not in its original business plan. The firm then expanded to become a shrink-wrapped desktop software company with programs including Illustrator, Photoshop and Acrobat, before further growing to offer web development tools, mobile solutions and enterprise product offerings. (Adobe co-founders Charles Geschke and John Warnock recounted the firm’s evolution in interviews with Knowledge@Wharton in 2008 and 2010, respectively.)

“This latest repositioning — focusing on integrating desktop, mobile and cloud technologies and offering a subscription-based pricing plan — is only the latest evolution of the company,” says Whitehouse. In a 2011 Knowledge@Wharton article after Adobe announced its Creative Cloud plan, Wharton legal studies and business ethics professor Kevin Werbach noted that “the old model of selling software in a box or [through] an enterprise server license and then charging for periodic upgrades has been disrupted.”

Adobe’s resolve to more actively sell its design tools to marketing departments at companies also seems to be a sound business decision, according to Fader and Whitehouse. But Fader doesn’t read the move as a reaction to the Flash debacle or “a desperate move” to boost revenues. In fact, “it’s much tamer than that … and a sensible way to change the nature of the relationship,” he says.

Whitehouse, too, suggests that Adobe’s “focus on marketing makes sense.” But he doesn’t see that as an easy game. “Of the various approaches Adobe has taken over time, perhaps the most challenging has been the company’s attempts to become an enterprise software company,” he notes. “Becoming a large-scale enterprise software and services company is a difficult transition for a consumer-based software company. All the same, the renewed focus on marketing takes advantage of Adobe’s enterprise offerings while staying close to the designer/creative ‘prosumer’ [professional consumer] customer the company knows well.”

Adobe expects customers to move to subscriptions gradually but has still warned investors that its growth will suffer as it changes to the new model, according to the Journal report. But Fader isn’t worried about that. “To [Adobe's] credit, it is a much more broadly diversified company than most people think,” he says.

Fader sees Adobe’s business as one where companies are going to win some and lose some. “It’s a portfolio play and not everyone can be a perfect market capturing sensation,” he notes. “Overall, I’m upbeat about their future. They have a lot of good products and services in the pipeline.”

The negative evidence has been piling up, say critics of the strict austerity imposed on many European countries to force budgetary and economic reforms. While those reforms are intended to usher in more sustainable growth eventually, today several European economies are slipping back into recession (Spain, Italy, Portugal, Ireland, Greece and the UK).

It’s evidence that policies that might work over the long term can have devastating consequences in the short term if they are jammed in over too-short a period, critics contend. But what has most turned the screw on austerity views are two recent developments that sent political tremors across the continent.

First, Mark Rutte, the Prime Minister of the Netherlands, resigned after a collapse in talks over the country’s budget, which included deep cuts. The resignation followed a refusal of far-right leader Geert Wilders to agree to some 16 billion euros of budget reductions as part of an austerity package. And second, in France, incumbent President Nicolas Sarkozy looks likely to be bested by Socialist challenger Francois Hollande, who strongly advocates a watering down of austerity measures in France and in Europe more generally. Hollande says he has support throughout Europe for a plan that would encourage more economic growth measures.

Hollande says he will not sign on to Europe’s fiscal-discipline treaty unless it is retooled to include a package of growth measures. As it stands, the European Union austerity budget treaty signed in March would send the continent into a deep recession, he argues. If he wins this Sunday’s election, as looks likely, Hollande vows he will offer ideas on how to recast the treaty the following day.

The bottom line is that politics is pushing back strongly against economic policies of austerity in Europe.

Wharton finance professor Franklin Allen calls the political developments significant. “Let’s see if Hollande wins on Sunday. If he does, then this may well impact what happens in elections Ireland on May 31 and in the Netherlands in September. I think Greece’s outcome on Sunday will also be interesting.”

As many European countries slip back into recession, there are signs of a shift to “those of us who have argued for economic growth first and a gradual fiscal adjustment,” says Wharton management professor Mauro Guillen. “We all hope now that the fiscal hawks realize that their strategy is not working.” But any meaningful pivot away from austerity and toward more stimulus “will only happen if GDP continues to shrink or grow very slowly. But then, I am not wishing for that.” In any case, expect strong headwinds for global firms in Europe.

Guillen adds that the best outcome “would be for governments to commit to fiscal balance over a period of three to four years, giving time for the economy to recover, tax revenue to increase and so on. But the problem is that the markets don’t believe the politicians’ commitment to fiscal austerity years down the road. They believe that if they reduce the pressure now, the politicians will relax.”

Allen thinks changes in Europe’s austerity stance are likely, at least in Spain, Italy and France (if Hollande wins).

But what will that change look like? “The problem is there are no good answers to this question,” Allen says. “If we rule out Keynesian demand stimulation, then product market reforms are the fastest acting.  But these are still measured in years. Labor reforms [take] a decade and education is even more.  The fastest is exchange rate changes. These act within months. This is why, in the end, I think it would be better if Greece, Portugal and Spain temporarily left the Eurozone.”

In Allen’s view, any shifts from austerity to more growth-oriented policies will be modest and likely slow to bring any change.

Microsoft’s cash infusion will help the bookseller’s digital business compete more aggressively with Amazon’s. According to The Wall Street Journal, B&N currently has a 27% share of e-book sales, whereas Amazon.com has 60%. Apple still leads in “media tablet” sales — 62% — compared with 6% for Amazon’s Kindle e-reader and 5% for B&N’s Nook device.

What does Microsoft stand to gain? “This is a platform play for Microsoft,” says Wharton management professor Daniel Raff. “If there is a niche for Windows 8-powered iPad-like devices, this might make them more attractive. The valuation suggests that [Microsoft sees] a lot of potential upside in this.” According to the Journal, Microsoft’s investment values the subsidiary at $1.7 billion. The change in B&N’s share price suggests that the market agrees, Raff notes: Following the announcement, the company’s shares were up 52% by the close of the day on Tuesday — the stock’s highest level in two years.

“The key actors here, in my opinion, aren’t centrally in books,” Raff adds. “They are Apple, Amazon and Microsoft.” According to Peter Hildick-Smith, president of Codex Group, which tracks trends in the digital book industry, these are among a handful of cash-rich companies that have “realized massive growth potential and are trying to grow share in the fast-emerging integrated device/media content/retail market.” (He notes that Google — with its Google Play online store and an anticipated device — is another significant player.) “This deal … gives Microsoft its first realistic stake in what we believe will be the dominant form of ‘retailing’ in this century, as Amazon is demonstrating with its 41% year-on-year growth rate. And starting with book consumers, who represent the top 20% of U.S. consumers, is a great place [to begin].”

Hildick-Smith, who notes that B&N is a Codex Group client, points out that entering this new form of retailing is particularly difficult for most companies to pull off and, according to his firm’s research, requires several elements in order to succeed, including: “a major, high equity brand in the content space,” “a best-in-class shopping platform with deep content available,” ” a deep reservoir of star ratings and thoughtful consumer reviews from its shoppers on every title it sells,” and a highly integrated store and device — or “e-tail solution.” And lastly? “Deep pockets.”

That last ingredient — as well as a long-term commitment — is precisely what Microsoft brings to the table for B&N, Hildick-Smith points out. “The integrated device/media content/retail business is phenomenally complex to build and deliver successfully,” requiring, among other things, significant funding to “grow it and spend on advertising,” he says. (The New York Times reported that Kindle ad spending was $150 million in 2010 alone, he notes.) “This is a land grab. The first to lock up a household with a branded, closed-platform device owns that household for the foreseeable future, meaning huge ROI. Kindle and Nook households are very loyal to their brands, and buy a lot more books within their brand family. Plus, the more additional types of content/products that are available to buy … the greater the [incremental] sales long-term.”

B&N has indicated that it will likely spin off the subsidiary into its own business. Wharton management professor Emilie Feldman, who studies divestitures, says this would be a wise future move. “I think the Microsoft investment was the right decision for the time being,” she says. “The investment gives B&N much-needed liquidity, allowing it to make strategic investments in both the Nook business and its ‘core’ brick-and-mortar operations.” Still, she adds, “B&N is a classic case of the whole being worth less than the sum of the parts, meaning that a spinoff of the Nook business in the future will unlock that value for shareholders. The Microsoft investment is useful because it gives investors preliminary information on the individual valuations of the two parts of B&N’s operations, paving the way for a complete separation.”

Sales for P&G — the world’s largest maker of consumer packaged goods — increased 3%, compared to 8.5% for Unilever PLC and 6.5% for Colgate-Palmolive, the Journal reported, while its stock price has remained relatively unchanged compared to an increase of 13% for Unilever and 17% for Colgate.

Two unrelated issues are hurting P&G, says Wharton management professor Lawrence Hrebiniak. “The first is a strategic, product-mix issue. P&G has been focusing more and more on higher-end products, including beauty and cosmetics. These products are being hurt by down markets, especially in Europe. Some high-end products are doing well because of pent up demand and/or low interest rates — such as autos — but the same doesn’t hold for P&G’s stable of expensive offerings. The day of ‘rack ‘em, stack ‘em and sell ‘em’ at low cost that characterized the marketing of Tide and other commodities has changed, and the newer emphasis on the high-end isn’t faring well worldwide.”

A second, related issue is that growing emerging markets are looking for the low cost commodity products that P&G is emphasizing less and less, Hrebiniak adds. “Greater decentralization of structure and operations is needed to cater to local tastes and demands, but P&G seems weak in this regard. Perhaps too much centralization, coupled with downplaying the products that emerging markets are looking for, is hurting market share and the bottom line. McDonald and his team need to look carefully at strategic and operating issues — especially decentralization and getting closer to emerging markets — to turn things around.”

Some of the analysts on the conference call took the unusual step of blaming McDonald for the company’s woes, according to the Journal, which also pointed out that P&G saw a 16% decline in earnings, registered drops in market share in 55% of the categories and countries it operates in and plans to cut 4,000 jobs by 2016. P&G brands are available in 180 countries and range from Bounty, Crest and Pampers to Gillette, Tide and Pantene.

McDonald, who joined P&G in 1980, has been president and CEO since 2009 and chairman since 2010, and has been credited with spearheading a number of innovations at the company. What he hadn’t counted on, however, was a recession that has led to consumer demand for cheaper brands, and a backlash against the company’s decision to raise some of its prices at a time when other companies were holding steady. As Wharton marketing professor Stephen Hoch notes, “Consumers have turned much more price sensitive, and grocery retailers reinforce those behaviors [by] fighting to retain market share and continuing to push their store brands in order to reinforce a value image.” What P&G is mainly focused on, Hoch adds, is “retaining market share, since when you lose it — and they have plenty to lose as the top dog — it is not easy to get it back.”

Wharton management professor Louis Thomas says P&G’s current woes are because “its strategy over the years has been to build dominant market positions in product categories by starting price wars with competitors. In fact, P&G brand managers are given a strong incentive to defend market share and not profits. So brand managers routinely cut price, and thus margins, in order to hold market share.”

That strategy, Thomas says, has at least two limitations: First, “it is only effective as long as rivals are more financially constrained…. [But] many of P&Gs rivals, such as Unilever, are not financially constrained. In this case, P&G’s strategy simply leads to a prolonged price war, and because it is the bigger firm, it is hurt more than its rivals.” Second, this strategy is “vulnerable to innovation,” Thomas notes. “Other firms can introduce new and better products to limit the effectiveness of P&G’s price cutting. Unilever and Colgate have recently out-innovated P&G in many product categories.”   

What P&G needs to do, he adds, is “focus on improving existing products and introducing new ones [as well as] increasing advertising expenditures on these new products. This will allow prices/margins to improve and limit share gains by rivals. In the long run, firms simply cannot rely on price cutting to maintain their position in markets.” 

Innovation is key. “P&G has simply tried to raise prices without increasing differentiation,” Thomas says. ”This just leads to a classic prisoner’s dilemma where all firms lose in price wars. One way out is through product differentiation via innovation…. Aggressive pricing strategies have to go together with innovation for the industry leader if it wants to stay the leader. It’s like a strategic one-two punch.”

As for how much McDonald is to blame for the weak results, Thomas suggests that “the problems in certain categories like … shaving and detergents seem attributable to him. P&G was well ahead in those categories but rivals have gained as P&G slowed innovation.”

As for Hoch, “I don’t believe in the great man theory of leaders, and so I don’t see that McDonald is to blame exclusively…. Long term, I would absolutely not bet against P&G. This is not to say that they never blow it; they do. But they are still the class act in consumer packaged goods.”

According to Wharton marketing professors Jonah Berger and Eric Bradlow, that unintended impact of such natural disasters can tell marketers a lot about how the sights and sounds that we’re exposed to every day can impact our choices and, in turn, influence the consumer goods, music, movies and even baby names that become popular. Their paper, “From Karen to Katie: Using Baby Names to Understand Cultural Evolution,” is forthcoming in the journal Psychological Science.

After using a statistical model to study more than 100 years of first names and doing a natural experiment using the names of hurricanes, the researchers found that the popularity of a particular moniker is impacted by how widely the sounds in that name were used previously. In other words, a first grade class filled with Karens is likely to be followed by a wave of six-year-olds with names that use similar sounds, or phonemes, such as “Katie” or “Karl” — or even “Darren” or “Warren.”

“But we think this is a lot bigger than baby names,” Berger says. “We were interested in whether we could predict what’s going to become popular by looking at what’s popular now, thinking about the similarities between different things — whether it’s songs, baby names or cars — and using that to understand what’s going to be popular next.”

Baby names are a good place to start because, unlike movies, cars or consumer goods, it’s a decision that is mostly driven by the individual. “Certain names don’t cost more than other names, and certain names aren’t advertised more,” Berger says. “It’s more about what people like, which makes it a good way to see how social influence drives popularity.”

More than once, Berger has heard new parents say they picked a particular name because it was unique, something nobody else would have chosen. “Then the baby goes into first grade and there are six or seven Jacks,” says Berger. “We’re all trying to be unique in our choices, we’re all trying to pick something different from each other, but somehow we all end up picking things that are the same.”

The research, co-authored by Wharton PhD student Yao Zhang and Alex Braunstein of app search engine Chomp.com, shows that this could be because what we’re exposed to on a daily basis changes how we feel about certain sounds and makes them unconsciously stick in our minds.

It’s true, however, that some names are consistently more popular than others — think “James” and “Michael” for boys or “Emily” and “Elizabeth” for girls. And more babies are born in some years than others. The statistical model created by the researchers controls for those factors in order to isolate the impact of hearing the sounds of a particular name. “Let’s say there are a million babies last year named Isabella because of the Twilight series,” Bradlow says. “Any effect we find for the sounds themselves already accounts for the inherent popularity of the name itself.”

In the case of hurricanes, they collected the names of all storms from 1950 to 2009, as well as the amount of damage each caused. More serious hurricanes are naturally talked about more, and according to the research, first names with similar sounds to those storms became more popular as a result.

Both the statistical model and the hurricane experiment showed that the beginning sounds of names had a greater impact than the middle or ending phonemes on the future popularity of other names. There was also a point where widely used sounds began to suffer from over-popularity.

“What makes this really interesting to people who aren’t just interested in baby names is that it helps us understand the evolution of culture,” Berger says. “Since The Tipping Point, people have been interested in how social epidemics work and why some things are more popular than others. This research gives us insight into how social influence shapes what products and ideas are going to be more popular in the future.” For example, if royal blue cars are popular one year, it’s more likely that some other shade of blue would be in style the next. “It’s the same thing across domains as well,” he adds. “We may see a certain color on a car and that may influence what color house we like or what color dress we like.”

Using a similar approach for naming a consumer product or predicting which songs will become more popular would be more difficult statistically, Bradlow says, because there are more extenuating factors involved. “People have no inherent strategy for picking a baby name,” he notes.

Berger suggests that there are conscious and unconscious factors creating such impacts, whether they are related to baby names or choosing a color for a new car. “We want to wear the right style of dress to a cocktail party, but we want ours to be better than everyone else’s. That’s a conscious part of our identity,” he says. “But unconsciously, we may just like something more or less based on what we’ve seen or heard lately, and we may not know why.”

S&P also lowered the rating of 21 banks and companies, including majors such as the State Bank of India, ICICI Bank, Infosys and Wipro. This will make it more expensive for them to raise money.

Indian finance minister Pranab Mukherjee, however, said that the downgrade did not indicate a crisis — and the stock markets shared his opinion. The Bombay Stock Exchange sensitive index (Sensex) had gone down 190 points on the S&P news, but it recovered to end the day only 56 points down.

Meanwhile, other government officials underscored the point that the only solution was to speed up reforms. The opposition parties have successfully stonewalled all attempts to pass relevant reform bills through Parliament. The day after the downgrade, the Asian Development Bank (ADB) made the same point. The S&P rating cut “is a timely warning,” Rajat M. Nag, managing director general of the ADB, told Kolkata-based daily The Telegraph. “Reforms are running into some headwinds.”

On the reform issue, the government has created its own problem. A few days earlier, chief economic advisor Kaushik Basu reportedly told a Washington meeting of the Carnegie Endowment for International Peace that there were unlikely to be major economic reforms in India before the next Parliamentary elections in 2014. Basu later issued a statement claiming that journalists had juxtaposed his comments on Europe in 2014 with the Indian election of 2014. Read Basu’s statement: “This is unfortunate, because the central message of my talk was the possible European crisis of 2014 and India’s major rise thereafter, likely overtaking China.”

The damage, however, was done. Indian industry has been saying for some time that the anti-corruption movement in the country has resulted in a policy paralysis in Delhi; bureaucrats and politicians are afraid of making decisions in case they are accused later of having ulterior motives. Basu’s statement has been highlighted by the opposition as an official admission that this is indeed the case.

There are other problems which are Mukherjee’s own creation, critics note. In the Union budget, he had introduced a capital gains tax on offshore transactions involving Indian assets — but he did it with retroactive effect from 1962. Vodafone and other affected firms are now fighting back. British chancellor of the exchequer George Osborne has met with Mukherjee to lobby for Vodafone. Companies which had their licenses cancelled by the Supreme Court in the telecom scam have also tried to persuade government officials to plead their case with Mukherjee. This includes Norwegian minister of trade and industry Trond Giske: Norway’s public sector Telenor was partner in a joint venture — Uninor — that had its license cancelled. Sistema of Russia has meanwhile sought a solution in the India-Russia bilateral investment treaty.

The Supreme Court had asked the Telecom Regulatory Authority of India (TRAI) to come up with an auction scheme for the cancelled licenses. The TRAI has confounded everybody by setting the floor price at a very high level. Telecom industry players say they will go into the red if they have to pay such prices.

Meanwhile, another budget provision, the General Anti Avoidance Rules (GAAR), is causing other ripple effects. Says economic daily Mint: “GAAR gives sweeping powers to the tax authorities to question any transaction with retrospective effect. Overseas investors say they will have to exit India if the law is implemented.” According to credit rating agency ICRA: “GAAR is adding to the anxiety of foreign investors.” In April, the fund flow from foreign investors turned negative for the first time this year, reflecting the growing negative sentiment.

Clearly, Netflix has yet to recover from its recent 60% price increase and failed attempt last September to spin off its DVD delivery business. The company’s U.S. customer base has eroded from 24.6 million last June to 23.4 million currently. (It also operates in Canada.)

Netflix’s problem is threefold: content partners, competitors and customers, according to Wharton operations and information management professor Kartik Hosanagar. “First, it was obvious that Netflix’s original margins were not sustainable in the long run,” he says. “Netflix secured some of its early [content] licenses at very low costs, and it was clear that the content owners would seek more the next time around.” That explains why the company’s costs have gone up over the last year — and the situation is unlikely to get better, he adds.

Increased competition is Netflix’s second hurdle, says Hosanagar. He points to the likes of Hulu and Amazon and also to streaming services being introduced by cable-TV firms like Comcast. “This competition will only get worse in the next 12 to 24 months.”

Customer loyalty represents Netflix’s third problem, he notes. “Customers used to be Netflix’s biggest strength.” But the past year “hasn’t been great for Netflix” because of several missteps — the most important of which were the debacle with pricing and the spinoff plans, he adds.

Netflix’s solutions lie in continuing to grow its customer base and “up-selling existing customers” — or launching higher-value offerings — to address the partner and competitor issues, Hosanagar says. “Going forward, the key to Netflix’s success will be to win back customer confidence. Investor confidence and Wall Street will follow.”

Filmmaker James Kerwin took a dour view of the business model behind Netflix’s streaming business in an interview with Knowledge@Wharton in January 2011, soon after Netflix announced its offering of streaming movies and videos. The company’s model is not economically sustainable, he noted, because studios will find that streaming rights cannibalize their DVD sales. He also warned that fee increases were inevitable: “Netflix is going to have to jack up the rates that their customers pay and/or they are going to have to limit the number of videos that a customer can stream per month — because the studios are going to start demanding higher rates. Otherwise, this is just going to implode.”

According to Wharton legal studies and business ethics professor Kevin Werbach, much of the criticism of Netflix “is overblown, just as the company was over-hyped earlier.” Netflix is still fundamentally well-positioned to exploit the ongoing transformation of video, he says. “Ultimately, Netflix will have to provide value-add, whether in its recommendations, knowledge of its users or ability to function as an independent ‘honest broker’ unaffiliated with all the other industry segments involved,” he notes. “The basic function of getting any content users want to any platform, whenever users want it, will become the table stakes.”

Technology companies, including Netflix, are increasingly adopting the concept of customer lifetime value (CLV), Wharton marketing professor Peter Fader noted in a recent Knowledge@Wharton article. CLV is a marketing formula based on the idea that firms should spend money up front, and sacrifice initial profits, to gain customers whose loyalty and increased business will reap rewards over the long term. According to Fader, following a CLV model can keep companies from panicking when making big strategic decisions. An example he offers is Netflix’s move to raise subscription prices as its business focus shifted from offering DVDs by mail to the streaming model. In Fader’s view, Netflix was smart in the way it split its business and pricing, but not so in the way it announced those changes.

Still, for Netflix, such “screw-ups are a blip,” he said. “Dropped subscriptions are likely to be picked up again because Netflix really doesn’t have a comparable competitor.”

 An edited transcript of the interview is accessible below.

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The main provision of the RTE directs all schools — including private schools, with the exception of those run by certain religious and linguistic minority groups — to reserve 25% of their seats for students from underprivileged backgrounds in their neighborhoods. Any school that does not comply with the RTE rules will be derecognized by the government. This goes into effect beginning with the 2012-2013 academic year.

The government expects the RTE to provide a level playing field to the vast number of children who are unable to access quality education because of economic and social constraints. According to Kapil Sibal, India’s union minister of human resource development, the RTE “is an attempt at affirmative action and social integration.” In an article in the daily newspaper Times of India, Sibal noted that if the RTE Act is implemented “in the right spirit … [it] could well become a model for the world to emulate.”

But the move has raised concerns among private schools. One issue is around the financing of the scheme. According to the RTE, the government will bear the additional cost incurred by the schools. But it is expected that government grants will only meet part of the expense; the rest of the cost will be passed on to regular fee-paying students. Then there are concerns over creating parity between different levels of education and exposure. There is also a fear that local politicians will use the provisions of the act to pressure schools in order to gain brownie points among voters. In a recent column, T.V. Mohandas Pai, chairman of Manipal Global Education Services, noted: “The RTE will give power to school inspectors for enforcement, creating a source of harassment and corruption.”

Experts also suggest that the act could have an adverse impact on investments in the education sector. Talking to business daily The Economic Times, Manish Sabharwal, chairman of TeamLease Services, said: “Just as government subsidies do not reach those who need it, 25% of the seats will not go to the poor. RTE will not get our kids educated, but [it] declares war on education entrepreneurship.” Added Vishal Jain, president of wealth management at Nadathur Investments: “The idea of RTE is noble, but the implementation is not appropriate.”

Currently, around 90% of schools in India are either directly operated by the government or funded by it. However, it is estimated that 40% of school-going children attend private schools. In contrast, in the U.S. more than 80% of children attend government-run schools. In U.K., the number is over 90%.

Experts say that instead of compelling the non-aided private sector schools to reserve 25% of their seats, the RTE should first focus on improving the quality of education in government schools. Justice K.S. Radhakrishnan, the dissenting judge in the Supreme Court verdict, noted that the government cannot free itself from its obligations by “offloading or outsourcing [them] to private … actors like unaided private educational institutions, or coerce them to act on the state’s dictates.” According to Pai: “The [RTE] is a chimera and gives a perfect excuse to the government to abdicate its responsibility to improve [education] quality.”

The Financial Times notes that the IMF has again called for interest rate cuts by the European Central Bank (ECB), while further recommending additional liquidity injections through the newly created Long- Term Refinancing Operation (LTRO) and more sovereign bond purchases.

That is not necessarily a prescription for inflation, of course. But the IMF has flagged the risk of a deflation-debt spiral in Greece, Ireland and Spain — three countries receiving IMF support — and the article reported that the IMF has forecast that “inflation was likely to fall below the ECB’s target — below but close to” 2% to 1.5% in 2013.

Germany’s historically based fear of inflation aside for the moment, wouldn’t a modest uptick in European inflation make it easier for indebted countries, companies and individuals (and the banks they owe money to) to retire debt? And even if toggling the inflation switch up a notch is politically a non-starter, shouldn’t eurozone officials at least be very afraid of falling below the target, given the risks of deflation?

“This is precisely what I, and many others, have been saying,” says Wharton management professor Mauro Guillen. “Growth must come first, and debt reduction and fiscal balance later. The problem is that the politicians have no credibility. So the markets think that they will get growth now and forget about fiscal discipline later. It’s essential that Germany and the ECB help change that perception so that European countries in the periphery can start growing again.”

But despite a ringing deflation warning from the IMF — known for advocating relatively mainstream economic remedies — on the importance of maintaining adequate liquidity, the ECB seems squarely focused on an inflation threat, based on one of its first public statements following the IMF report.

Peter Praet, of the ECB’s executive board, made it clear in a speech to Germany’s finance ministry on Thursday, the day after the release of the IMF report, that containing inflation will continue to be a key policy at the multilateral bank. While acknowledging that the current crisis in Europe is “exceptional” and a real threat to the prosperity of the region and the world requiring a “forceful response,” he said many factors limit the range of official response regarding any increase in liquidity.

For one thing, the weak budget positions of many countries place “severe constraints on the capacity of governments to – somehow – spend their way out of the crisis.” Even in the face of calls for more action from monetary authorities, and presumably from organizations such as the IMF, Praet said, “we cannot afford to take measures that entail the risk of adverse economic consequences, such as moral hazard in fiscal policies or an unanchoring of inflation expectations.”

Wharton finance professor Franklin Allen points out that many observers believe that a dose of mild inflation, particularly in Germany, would be an effective adjustment policy. “It would also be much less painful than having prices fall in the periphery countries.” But this “assumes that the ECB can easily control the inflation level. This is quite difficult in the current environment. They may well end up increasing asset price inflation rather than consumer price inflation,” creating another bubble. The ECB  could also overshoot. “Even if they are successful, there is likely to be an adverse political reaction in Germany. So my guess is that the ECB will not try to do this.”

This all comes against a background of a huge bank deleveraging in Europe, according to the IMF report, that could drastically reduce the amount of credit banks can offer to businesses — an additional reduction in liquidity that could tamp down economic growth. Sovereign risks, weak euro-area growth, high rollover requirements and the need to strengthen capital cushions are forcing banks to shrink their balance sheets “by as much as $2.6 trillion (2 trillion euros) through [the end of] 2013, or almost 7% of total assets,” the report notes. “[Our] estimate is that about one-fourth of this deleveraging could occur through a reduction in lending.”

The IMF projects global economic growth at 3.5% in 2012, up 0.2 percentage points from its forecast at the beginning of the year. It projects a 0.3% contraction for the eurozone economy, a bit improved over the 0.5% contraction forecast in January.

Christine Lagarde, managing director of the IMF, recently discussed the merits of austerity measures in an exclusive interview with Knowledge@Wharton.