Head on over and be sure to update your feeds!

First a little background.  Frozen yogurt has been making a comeback of late in Los Angeles.  It seems within the span of a year, within a five mile radius, my neighborhood went from one to five frozen yogurt places.  All of these places have followed the same formula; about a dozen flavors of yogurt, about two dozen topping choices ranging from fresh fruit to gummi bears, and sold at the price of 35 cents per ounce. I wish I was making that up, but all five individually owned frozen yogurt places charge the same price.  When my wife and I went out for yogurt for dessert one night a couple weeks ago, we started talking about a saturation point for the market.  All five places charge the same, serve the same toppings, and there is little variation in the flavors of yogurt.  The only way I could differentiate any of these stores was that the one right off campus from CSUN offered a 10% discount with a student ID.  At what point would the frozen yogurt market collapse on itself?

But today was different.  The latest frozen yogurt place to open opened its doors Monday after having a banner out front saying “coming soon” for about a year and a half.  My wife and I stopped in to check it out because we were buying gifts at a store next door.  We knew the drill, go in, check out the yogurt flavors, find the granola and Oreo toppings, put it on the scale and pay 35 cents an ounce.  It wasn’t until we paid that we looked up at the signage behind the register and were surprised.  Not only was there a price for yogurt, but there was also pricing for crepes and snolli (think frozen cotton candy).  We asked what snolli was, and were treated to a free sample.  Best part is, the store is within walking distance.

It’s surprising that it’s taken so long to find a frozen yogurt store to differentiate itself in such a way.  As with any competitive market, companies have to find ways to make an impression on consumers, whether it’s through a better product, a better price, better location or better promotion.  As I mentioned, the only store I could differentiate in my mind was the one that offered a discount to consumers with student IDs.  But the bigger menu at this newest place offers a greater advantage for differentiation.  I’ll be willing to bet that soon competitors will expand their offerings or suffer the consequences.  What makes this new store so interesting is that they opened with a competitor with a quarter of a mile that itself only opened a month ago.  I’ll have to check out the existing store over the coming months to see how things play out.  In the marketing mix, place and price are equal, the existing store has done some promotions with coupons in the mail, while the new store has the better product selection by adding the crepes and snolli.

As for now, it seems that the market can sustain an increase in the number of frozen yogurt shops.  Every time I’ve been to one, there has been several customers making their own dessert.  Every store is in a location that lends itself to a dessert shop, being located in shopping centers with other restaurants and stores that often consume a lot of time, such as grocery stores.  That leads to parents taking their kids for frozen yogurt after spending an hour buying groceries or to get a healthier dessert than most restaurants serve.  But when the market passes that saturation point and stores begin to close, it will be the stores that differentiated themselves that will still be standing.

The main force behind the cancellation of Leno’s show is the low ratings. Leno drew roughly 25% fewer viewers at 10pm than various shows the previous year. When Leno left The Tonight Show, he was number one in the ratings in his time slot. Meanwhile, Conan has lost 47% of Leno’s old audience. Some decline was to be expected as Leno fans followed him to his new show. While Leno’s audience satisfied NBC executives, it didn’t sit well with management in regional affiliates. Audiences for eleven pm news broadcasts on affiliate stations have dropped 30% since Leno’s show started in September. That, in turn, would affect Conan’s audience. David Letterman has seen an increase in ratings, moving into the number one position for the first time since 1994. But there is one name I have yet to be heard in discussions of the late night ratings. Stephen Colbert.

Comedy Central’s The Colbert Report airs at 11:30 pm, opposite the first half of The Tonight Show. Given the history between Colbert and Conan, there is some overlap between their respective audiences. In January 2008, both hosts claimed responsibility for Mike Huckabee’s success in the Iowa caucus to kick off the presidential primary season. The feud crossed over both shows, and even onto The Daily Show, which precedes Colbert. Knowing there is an overlap with the two shows could help explain why Conan hasn’t been able to hold onto his own audience. Leno’s audience was generally older than Conan’s, and Colbert picked up a lot of the younger viewers at 11:30 before they switched to Conan at 12:35.

Meanwhile, if NBC lets Conan walk away from the network, the ratings war will get very interesting. When Johnny Carson hosted The Tonight Show, he was the only one to watch. His retirement split the audience when Letterman left NBC’s 12:35 slot after being passed over for Leno to replace Carson, and went to CBS to compete directly against Leno. That allowed Conan to take the 12:35 slot. Now, if Conan were to leave and go to another network and compete against both Leno and Letterman (not to mention Colbert), the ratings of Leno and Letterman would take a hit for sure, and would benefit whatever network Conan moved to.

He brought guns to the locker room. The NBA collective bargaining agreement bans players from bringing firearms onto team property. That includes practice facilities, arenas, and team transportation. What doubles Arenas’ trouble here is DC gun laws. While the out-right ban on guns inside the city limits was lifted in 2008, a person is only allowed to keep registered firearms in their home, and nowhere else. This is also a terrible reminder to the city that was once “The Murder Capital of the US”. The NBA itself has also taken a hard stance against similar acts, and is still living in the shadow of the “Malice at The Palace”, where NBA players charged into the stands and attacked fans who threw beer cups at them. The NBA has done the right thing suspending Arenas indefinitely.

Arenas’ Response. Simply put, Arenas did not handle the backlash well. From Twittering about the incident, to an apology that was so obviously written by his lawyer, to making “finger guns” in a pre-game huddle the day before his suspension, Arenas seemed oblivious to the gravity of the situation. Since these actions and the suspension, the Washington Wizards have completely removed Arenas’ likeness from all team functions. So for now at least, it’s as if Arenas never played for the team. His jerseys are not available in the team store at Verizon Center, a large ad across the street featuring Arenas is now gone, and he has vanished from team videos in the arena.

The late Abe Pollin. The owner of the Wizards, Abe Pollin, died in November. Pollin changed the name of the Washington Bullets to the Wizards in 1997 as a tribute to his friend Israeli Prime Minister Yitzhak Rabin, who was assassinated two years earlier. Abe Pollin was a popular man in the city of Washington. He owned the Wizards for 35 years before his death, as well as the NHL’s Washington Capitals from their inaugural season of 1974 until 1999. Pollin built the Verizon center in Northwest in 1997 to be a home for his teams in the city limits. The Verizon Center was not funded with taxpayer money, which is a rarity these days. Pollin provided all the financing for an arena that has revitalized the surrounding area over the last thirteen years. Pollin also took a great interest in the lives of the players for the teams, including Arenas. For Gilbert Arenas to take an incident involving guns on Wizards team property so lightly shows very little respect for the legacy of Abe Pollin.

While all these factors are rather damning in the court of public opinion, there is one thing that looms over any sports story involving a player in team sports, and that’s a player’s contract. Arenas signed a 6-year, $111 million contract in the summer of 2008. When a player signs a large contract, that magnifies anything that happens on or off the field of play, whether it’s an injury or a story like this. We’ve seen the same thing in the Tiger Woods story. If the last man on a roster making the league minimum did what Arenas did, this would be far less of a story. However, the public does have the capability for forgiveness. Look at Kobe Bryant and Michael Vick for examples. If Gilbert Arenas can accept what he did for the serious nature of it and respond accordingly, the fans will be willing to dust off their Arenas jerseys and support him again.

The California Budget: Back in February, the State Assembly was at an impasse on a budget due to falling tax revenue and rising costs of running the state. A budget was passed that featured increased taxes, ranging from the sales tax, car registration and income taxes. In addition to tax increases, budget cuts were made where they could, with education being hit particularly hard. The cuts in spending were harder to manage due to the state workers unions who collectively bargain for wages and benefits that theoretically could only be voided before the contracts ended by mutual agreement or if the state declared bankruptcy. With less money coming from the state for the university systems, the most obvious way to make up that shortfall is to increase fees to enrolled students.

Demand For Education: More and more high school students have college aspirations. In addition, more employers expect a college degree from applicants. This leads to the natural intersection of supply and demand. As the level of supplied education stays level in the face of rising demand, prices will go up. However, with the UC system, that $10,000 mark is a steep psychological barrier. While one would expect to pay that much for a more prestigious university, such as UCLA or Berkeley, students enrolled at the four-year-old Merced campus may begin to wonder what they’re paying for. Another cause for the increase in demand is the availability of student loans. I’ve talked about the availability of credit as a cause of inflation in the past, and this follows a similar principle. Too much money and too few classes available leads to an increase in costs.

The economy: This relates to falling tax revenue and the demand for education. California taxes capital gains at the same rate as regular income. As the valuations of stocks and other assets have fallen sharply, there is less income to tax. In addition, the economic downturn has led to a sharp rise in unemployment, with California’s unemployment currently standing at 12.5% compared to 10.2% nationwide. Again, fewer people working leads to less revenue from income taxes. State budgets also included spending increases based on forecasts that included higher tax revenue, as people could expect raises or get higher paying jobs. With most companies freezing pay, those forecasts go out the window. Meanwhile, demand for education is increased for similar reasons. Without jobs, people go back to school to learn new skills to make themselves more marketable in a job market where employers have the advantage. An influx of new students would result in higher costs for the university due to the need for more classes and professors to teach those classes in addition to additional support staff.

When looking at these factors, it’s clear that the UC rate hikes are about a perfect storm of factors. While the economy has increased demand for education to high unemployment and employers’ expectations for applicants to have a college degree, the economy has also cost the university system funding. Ideas to smooth out fluctuations have been met with resistance in all venues. The State Assembly has been wary of moving to a flatter taxation rate to avoid significant drops in tax revenue as the Assembly doesn’t want to increase the tax burden on low-income residents. A proposal to increase fees for high-demand majors, such as business and engineering, was met with hostility from students. Unless a plan to reduce those fluctuations in funding can agreed upon, stories like this will become more common in the state.

Presently, only two numbers are retired on a league-wide basis in major US professional sports. Major League Baseball retired Jackie Robinson’s number 42 in 1997 to mark the 50th anniversary of the breaking of baseball’s color barrier. By that standard, it would be difficult to argue in favor of the NBA retiring Jordan’s number. Robinson was a social pioneer for being the first black MLB player, which not only affected African-Americans but black Hispanic players as well. Playing in the 80′s and 90′s, Jordan never had that level of impact. The other number retired by a league is Wayne Gretzky’s number 99 by the National Hockey League. Gretzky retired as a player in 1999, and the following winter the league retired his number as a tribute to arguably the greatest player to ever lace up the skates. Gretzky held every major scoring record in both the regular season and the playoffs at the end of his 20 year career. That’s not something Jordan can say. Jordan is third on the NBA all-time scoring list, behind Kareem Abdul-Jabbar and Karl Malone (who was Jordan’s contemporary). To find Jordan’s name on the career total lists for other statistics, who need to look lower than third.

However, it’s hard to imagine that social pioneering and all-time records are what JeBron James had in mind when he said “There would be no LeBron James, no Kobe Bryant, no Dwyane Wade if there wasn’t Michael Jordan first.” LeBron, Kobe and Wade wouldn’t have the marketing opportunities they have now had it not been for Jordan. Michael Jordan has become an iconic brand that has lasted more than two decades, including six years after he played his last NBA game. Nike’s Jordan shoes are still big sellers. Jordan pioneered the superstar endorsement model that enabled players like LeBron and Kobe to gain their own shoe models. You can still see Jordan pitching for Hanes underwear with Charlie Sheen on television today. Anyone who is interested in learning more on how the Jordan brand came to be should read “The Bald Truth” by David Falk. Falk was Jordan’s agent during his playing days and was instrumental in negotiating Jordan’s marketing agreements.

Jordan didn’t have the social impact that Jackie Robinson had, nor did he own the record books the way Wayne Gretzky did. Michael Jordan will be remembered for opening up the door to additional business deals for today’s athletes in addition to his athletic talents. Without Michael Jordan, players in all sports wouldn’t have the same level of endorsements they do now. Kobe Bryant would be paid to wear Nike shoes, not to have his own model of shoes from Nike. Derek Jeter would have a baseball glove, not his own model of glove. Celebrity endorsements are as old as advertising itself, but giving the endorser their own product can trace its roots to Michael Jordan.

The most important numbers in Edmunds’ findings is 125,000, the marginal sales spurred on by “Cash For Clunkers”, and $24,000, which is how much each marginal car cost in federal funds from the $3 billion allocated to the program. Edmunds measured what the seasonally adjusted sales rate should have been using historical data and this year’s sales data to arrive at the marginal sales rate. Perhaps more importantly, using the same seasonal adjusted sales projections, Edmunds has been able to make predictions for the sales for the remainder of the year, and its not nearly as sparkling. Edmunds predicts that car sales will decrease on a seasonally adjusted basis for the last quarter of the year.

Predictably, the White House has issued a rebuttal to Edmunds’ findings. One of the major points the White House refutes is how “Cash For Clunkers” will benefit the US GDP in the second half of the year. When viewed on the macroeconomic level, I can believe this argument. The amount of labor and money that goes into delivering a car to a consumer is great. There are the part manufacturers making spark plugs and ignition switches, the freight companies that deliver components to the assembly lines in Detroit and elsewhere, where the components are assembled into a car. Then you have more freight delivering the cars to dealers, and the dealers themselves who employ salespeople, mechanics and an administrative staff. That’s a lot of hands that go into building a car. For now, the major manufacturers have to build more cars than usual due to the fact that cars traded in as “clunkers” have to be dismantled. But what happens when auto sales level off, production drops and layoffs occur? How far into the future will that occur? It could happen in a few years as part of a normal cycle, or it could occur in a few months if potential consumers still have difficulty obtaining a car loan.

As an aside, one would expect an official White House communication channel to sound more professional. Read the title of the post to see what I mean.

Perhaps the most troubling aspect of Edmunds’ research is the cost per marginal car. According to the Federal Trade Commission, the average selling price for cars stands at $28,400. Subtract the $4,500 maximum rebate available under the program, and you get $23,900. That means the government spent $100 more per marginal car than the average price. From an economic standpoint, selling for a loss is a dangerous prospect. I’ll be keen to see sales numbers for the last quarter of the year to see if those numbers hold up under the weight of the “Cash For Clunkers” program. If more than 125,000 sales are lost, then the program will have created negative net sales. If that happens, it will be hard to call the program a success.

Meanwhile, the Redskins are 2-5, which, while not where a football team wants to find itself after seven games, is hardly the 2008 Detroit Lions which lost all sixteen games they played. Redskins fans are upset with the direction the team seems to be going, having played their first six games against winless teams. Fans have been making their feelings known in the two most common ways these days, sports talk radio and stadium signs. Posters saying to the effect of “Fire Snyder!”, referencing Redskins owner Daniel Snyder, have been commonplace this season. Even the local sports columnists are venting about the Redskins. And that has the team irked.

Redskins general counsel David Donovan was recently quoted as saying “I think the relentless negative coverage in The Washington Post is a real difference from previous years.” I’m of the opinion that the press a sports team gets correlates to its performance on the field. If the team does good, the press is glowing. Lose, and it gets depressing in a hurry. But what makes the Redskins handling of their coverage interesting is the nature of the team in the city. DC is Redskins territory. Sure, the Caps and Wizards have had some success recently (certainly more than the Redskins) and the Nationals are still in their honeymoon period, but the Redskins have long held the passions of DC sports fans. Perhaps fans are frustrated by a decade of mediocrity under Daniel Snyder. Perhaps fans are impatient for another Super Bowl title (their last was in 1992). But rather than addressing the on-field problems in a meaningful way, the team has decided the media is the problem. Sounds similar to the Obama Administration taking on Fox News, doesn’t it? Just because a publication issues criticism, warranted or not, it doesn’t make that outlet the problem.

Meanwhile, other owners are making their opinions known on the matter. Ted Leonsis, owner of the Washington Capitals and perhaps the most popular owner in town right now, recently wrote on this subject in his blog, Ted’s Take. While he uses the example of the Obama Administration and Fox News as well, it could easily be applied to the Redskins. Leonsis also knows the wrath of DC fans, as he found out when he traded fan favorites Peter Bondra, Steve Konowalchuk and Sergei Gonchar five seasons ago. The draft picks and prospects acquired in those trades turned into key players for the Caps today, including Mike Green and Brooks Laich. From a national perspective, Mark Cuban, owner of the NBA’s Dallas Mavericks, talked about Snyder on DC radio, describing him as someone who wants to win so badly, he’s willing to do anything to make it work. Cuban would know, he still has the image of his team’s number one fan (as witnessed by the fact he often sits courtside wearing a Dirk Nowitski jersey). Leonsis and Cuban know what effect the press can have on perception, and they continue to stick to their vision and let everything play out in the arena.

Perhaps the best lesson is to be careful who you pick your fights with. Washington Post blogger Dan Steinberg, who writes The DC Sports Blog, has taken to starting all his Redskins related posts with that same quote from David Donovan. Goading the press like that is a surefire way to be mocked and ridiculed.

President Barack Obama won the Nobel Peace Prize last week. As one commentator put it (and I wish I could remember if it was Chris Cillizza of The Washington Post or if it was Armstrong and Getty on their morning talk show), the left will spin this as a proclamation that what the Democrats are doing is right, the right will spin it as “socialist Europe” saying they like what we’re doing, and the vast majority in the middle will simply shrug their shoulders and go about their day. However, many in the middle have been wondering what exactly the Nobel committee based their vote on, given that President Obama had only been in office 10 days before the nominations were due. This becomes an issue of brand positioning. The Nobel Peace Prize has always been considered highly prestigious. But if people begin to question the decision behind the award, that image can be tarnished. In a way, this would be comparable to Aston Martin or Maserati making a car to sell for $30,000. Everyone knows those brands as the highest of high-end automobiles, but making a more affordable version would ruin that reputation.

On the subject of brand positioning, fast food chain Carl’s Jr has come out with a new ad called “Nothing”. The non-marketer may get a chuckle out of it, but the marketer in me absolutely loves it. After comparing McDonald’s Angus burgers to Carl’s Jr’s Six Dollar burger and realizing Carl’s Jr has nothing to worry about, a staffer asks CEO Andy Puzder if they should make a commercial, Puzder looks at the camera and says “no” with an obvious hint of irony. Carl’s Jr has always been able to successfully use humor in their ads, and tongue-in-cheek marketing humor always works for me. Not only do they successfully position themselves as superior to McDonald’s for the same price, they do it with a style and humor that other chains haven’t been able to match.

Lastly, I have to comment on a product in two of my favorite categories, video games and digital distribution. Sony released their digital-only PSPGo as an update to the PSP product line. Sony redesigned their handheld console, removing the proprietary UMD drive, replacing it with 16GB of storage and requiring users to download new games directly from Sony via the PSPGo or the PS3. In theory, this market system should work. In reality, it fails spectacularly. The PSPGo is priced at $250, or $50 more than the UMD-driven PSP. Then you see the major drawbacks of digital distribution. Games are sold at the full retail price, as not to upset retail partners like GameStop and WalMart, with no secondary market. After completing a game, there is no option to loan the game to a friend, sell it on eBay, or trade it in for credit towards another game at GameStop. In addition, Sony has monopoly power over pricing. Games are only available to download through the Playstation Store. While download tokens are available at retailers, again to prevent backlash, what happens if the PSPGo reaches a critical mass and Sony says, “Thanks GameStop/WalMart/Best Buy, but we don’t need you to sell our games anymore”? Sony owns the distribution infrastructure that delivers games to the system. As for loyal PSP customers who already have a UMD-driven PSP? They can either stick with what they have, as UMD games will continue to be released, or they can pay full price again for games they already own a copy of if they have to have the newest hardware. Sony needs to be careful, or loyal customers will simply go elsewhere to spend their entertainment dollars.

While noble, the FCC may be taking the wrong approach to the subject of net neutrality. With the rise of VoIP services like Skype and video sites like Hulu.com to compete with telephony and television services offered by a limited number of Internet service providers, anti-trust regulation may be what’s needed. For starters, ISP’s, and telecoms in general, are an oligopoly, where there are only a few competitors serving the market. If you live in a rather developed part of town, you have at most three choices on who you can get Internet access from. You have your choice of the phone company that has the license to operate in your neighborhood, the cable company that is licensed in your area, or a satellite service like DirecTV. For cable television, you have two choices (cable and satellite), or three if you’re lucky (AT&T U-Verse or Verizon FiOS). This kind of oligopoly prevents true competition. That lack of competition is why net neutrality is needed.

As an example, I’ll use Netflix’s on demand service because of Wired Magazine’s recent article on the company. If the ISP offers television service, then there is incentive to degrade internet service from this service because it directly competes with their ability to sell consumers premium movie channels, in particular Starz (which Netflix has an agreement with). This example would bring anti-trust litigation as the ISP is using its market power to obstruct competition to benefit another portion of their business. This is similar to a movie theater barring you from bringing in outside food or drink and charging $7 for a soda or popcorn inside. If you want to watch what’s on Starz, the cable companies would rather sell you a $100 television bundle that includes Starz in the premium channel bundle than a $50 Internet service that you’d probably be getting alongside your television service anyway.

To skirt these restrictions, it won’t be surprising at all to see ISP’s return to the metered usage past. But ISP’s won’t charge by the hour like AOL used to. Instead they’ll charge by the data unit, whether it’s megabytes, gigabytes, or some other unit. Companies have already begun to experiment with this idea, such as Comcast’s announcement of a 250 GB cap last year. While Comcast stated you’d have to watch 125 standard definition movies to reach that cap, there was no mention of high definition movies, which are offered on Netflix. Also, it is not hard to conceive that if research were to show the average user was using far less than the stated cap, the cap would decrease to futher boost revenues with overage charges.

Perhaps I’m more cynical than most when it comes to near-monopolistic companies claiming they are helping the customer. But when a private company has monopolistic power, the customer is usually the last one who’s interests are looked out for.