Thursday, December 30, 2010

The Law of Attributes – Every Attribute Has an Opposite Effective Attribute

In a previous (Feb 4th 2010) blog post about The Law of Exclusivity, a point was made that you can’t own the same word or position that your competitor owns. You must find your own word to own. You must seek out another attribute.

Too often a company attempts to emulate the leader. “They must know what works,” goes the rationale, “so let’s do something similar.” This is not good thinking.

It is much better to search for an opposite attribute that will allow you to play off against the leader. The key word here is opposite so similar will not do.

The leading cola drink was the original and thus the choice of older people. Pepsi successfully positioned itself as the choice of the younger generation.

Since Crest owned the word cavities, other toothpastes avoided cavities and jumped on other attributed like taste, whitening, breath protection, and baking soda.

Marketing is a battle of ideas. So if you are to succeed, you must have an idea or attribute of your own around which to focus your efforts. Without one, you had better have a low price; a very low price.

Some say all attributes are not created equal. Some attributes are more important to customers than others. You must try and own the most important attribute to your target prospects and customers.

For example, cavity prevention is the most important attribute in toothpaste. It is the one to own. But The Law of Exclusivity points to the simple truth that once an attribute is successfully taken by your competition, it is gone. You most move on to a lesser attribute and live with a smaller share of the category. Your job is to seize a different attribute, dramatize the value of your attribute, and thus increase your share.

Here is another example. Burger King was unsuccessful when it tried to take the attribute “fast” from McDonald’s. What should Burger King have done? Use the opposite attribute? The exact opposite attribute, “slow” would not do for a fast food place however the there is an element of slowness in the broiling concept.

To drive the concept into a prospect’s mind, Burger King needed a term or attribute to describe it’s new concept … it came up with the “flame-broiled taste of Burger King.” This new concept for Burger King, at the time, created fear and terror in the boardroom at McDonald’s … this is always a good sign of an effective program.

Marketing is a battle of ideas. If you are to succeed, you must have a unique attribute to focus and describe your value. Without one, you had better have a low price; a very low price.

It takes a while but many Internet Marketing entrepreneurs learn the Law of Attributes. They learn to identify their target market, focus on promoting products that will appeal and add value to their target market.

To accomplish this, they use various methods, tools, and follow a traffic formula to build relationships with their leads and customers. They build websites that create trust. They collect name and email addresses using an Optin form on a Landing Page. They use email systems with both auto-responders and broadcast capabilities in order to send messages to their leads and customers. These email messages frequently send information, provide knowledge, and occasionally promote an offering. Many Internet Marketing entrepreneurs learn that leads and customers do not like to be sold to however they will browse and shop. Over an extended period of time, skilled Internet Marketers are able to use hypnotic writing skills, in their marketing campaigns, to get leads and customers to take the action they want. This is how they learn to identify a target market, stay focused, and add value to their target market. They learn to leverage the equity in their list and be successful in the world that includes the Law of Attributes.

It looks easy but marketing is not a game for amateurs. Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of Attributes as for every attribute, there is another attribute that is opposite and effective.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Finally, a great book to read is "The 22 Immutable Laws of Marketing" by Ries & Trout. It is the source of some of the material provided in this article.

In closing, be sure to meet me at my website, WhoIsMikeFarrell, learn some tips about being No 1 on Google at aspenIbiz My Go-To-Market Partners, and learn how to be savvy with your money like the insiders at aspenIbiz The Conspiracy For Your Money Blog.

Finally, I would like to provide Best Wishes for a Happy Holiday Season and a Prosperous New Year!

Tuesday, November 30, 2010

The Law of Sacrifice – You Have to Give Up Something in Order to Get Something

The Law of Sacrifice is the opposite of the Law of Line Extension. If you want to be successful today, you should give something up.

In the world of business and marketing, there are three areas to sacrifice: product line, target market, and constant change.

The first area to review is the product line.

Where is it written that the more you have to sell, the more you sell?

Marketing is a game of mental warfare. It's a battle of perceptions, not products or services. In the mind of the prospect, Eveready was the long-time leader in batteries and then new technology arrived-as it does in most industries. The first technology to change the battery business was the heavy-duty battery. What would you call your heavy-duty battery if you had the No.1 name in batteries? You'd probably call it the Eveready heavy-duty battery, which is what Eveready did. Soon after, the alkaline battery arrived. Again, Eveready called it the alkaline battery. It seemed to make sense.

Another company, P.R. Mallory then introduced an alkaline batteries only product line and the company gave the line a better name; it called them Duracell.

The power of the sacrifice (meaning it gave up a broad product line) for Duracell was in being able to put the "long-lasting battery" idea in the mind of the customer. Duracell lasts twice as long as Eveready said the advertising.

As a result of this success, Eveready was forced to change the name of its alkaline battery to "the Energizer" but it was too late. Duracell had already become the leader in the battery market.

One more example of the law of sacrifice is from the retail industry. Many retail chains that are successful have a pattern or formula of a narrow focus with in-depth stock. Here are some examples.

In the retail field, generally the big successes are the specialists:

- The Limited - Upscale clothing for working women.
- The Gap - Casual clothing for the young at heart.
- Benetton - Wool and cotton clothing for young swingers.
- Victoria's Secret - Sexy undergarments.
- Foot Locker - Athletic shoes.
- Banana Republic - Safari wear.

(When a clothing chain with a name like Banana Republic can be successful, you know we live in the age of the specialist.)

Let's review the second area of sacrifice which is the target market.

Where is it written that you have to appeal to everybody?

Take the cola field. Coca-Cola got into the prospect's mind first and built a powerful position. In
the late fifties, for example, Coke outsold Pepsi more than five to one. What could Pepsi-Cola do to go against Coke's powerful position?

In the early sixties, Pepsi-Cola finally developed a strategy based on the concept of sacrifice. The company sacrified everything except the teenage market and then it brilliantly exploited this market by hiring its icons: Michael Jackson, Lionel Richie, and Don Johnson.

Within one generation, Pepsi closed the gap and to be within 10 percent of Coca-Cola in total U.S. cola sales. (In the supermarket, Pepsi-Cola actually outsells Coca Cola.)

In spite of Pepsi-Cola’s success the pressure for enlarging the tent is always present. In the mid 80s, it succumbed to the temptation and according to a report in Advertising Age, "Pepsi-Cola Co. had outgrown the Pepsi generation. In a major marketing shift, flagship Pepsi will be pitched as the soft drink for the masses."

"Gotta have lt" became Pepsi's new theme and the advertising promotions showed older people like Yogi Berra and Regis Philbin drinking Pepsi.

According to Fortune magazine, “Coca-Cola is still the world's most powerful trademark. When an also-ran like Pepsi-Cola develops a narrowly focused strategy that puts it within an eyelash of the leader, why would it change its powerful strategy?”

Finally, the third sacrifice area is constant change.

Where is it written that you have to change your strategy every year at budget review time?

If you try to follow the twists and turns of the market, you are bound to wind up off the road. The best way to maintain a consistent position is not to change it in the first place.

A little over 20 years ago, People Express was a startup airline carrier and it had created a brilliant "niche" position. It was the no-frills airline that flew to no-frills cities at no-frills prices. People used to get on a People Express plane and say, "Where are we going?" They didn't care as long as it was cheap enough.

What did People Express do after it became successful? It tried to be all things to all people. It invested in new equipment like 747s. It started to fly the heavily traveled routes to places like Chicago and Denver as well as Europe. It also bought Frontier Airlines. It added frills like first-class sections.

People Express then promptly lost altitude and only escaped bankruptcy court by selling itself to Texas Air which did it for them.

Good things come to those who sacrifice.

It takes a while but many Internet Marketing entrepreneurs learn the Law of Sacrifice. They learn to identify their target market, focus on promoting products that will appeal to the target market, and to stay the course with persistent effort and not have constant change.

To accomplish this, they use various methods, tools, and follow a traffic formula to build relationships with their leads and customers. They build websites that create trust. They collect name and email addresses using an Optin form on a Landing Page. They use email systems with both auto-responders and broadcast capabilities in order to send messages to their leads and customers. These email messages frequently send information, provide knowledge, and occasionally promote an offering. Many Internet Marketing entrepreneurs learn that leads and customers do not like to be sold to however they will browse and shop. Over an extended period of time, skilled Internet Marketers are able to use hypnotic writing skills, in their marketing campaigns, to get leads and customers to take the action they want. This is how they learn to identify a target market, stay focused, and add value to their target market. They learn to leverage the equity in their list and be successful in the world that includes the Law of Sacrifice.

It looks easy but marketing is not a game for amateurs. Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of Sacrifice as you have to give up something in order to get something.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Finally, a great book to read is "The 22 Immutable Laws of Marketing" by Ries & Trout. It is the source of some of the material provided in this article.

In closing, be sure to meet me at my website, WhoIsMikeFarrell, learn some tips about being No 1 on Google at aspenIbiz My Go-To-Market Partners, my affiliate website, and learn how to be savvy with your money like the insiders at aspenIbiz The Conspiracy For Your Money Blog.

Saturday, October 30, 2010

The Law of Line Extension – There Is an Irresistible Pressure to Extend the Equity of the Brand

If violating any of the laws of marketing was a punishable offense, a large portion of corporate America would be in jail.

By far the most violated law of marketing is the law of line extension. What’s even more diabolical is that line extension is a process that takes place continuously with almost no conscious effort on the part of the corporation. It’s like a closet or desk drawer that fills up with almost no effort on your part.

One day a company is tightly focused on a single product that is highly profitable. The next day the same company is spread thin over many products and is losing money.

Take IBM. Over the years, IBM has been a mainframe computer company that made a ton of money. Then they evolved into a company that had everything, midrange computers, personal computers, pen computers, workstations, software, networks, telephones, and of course professional services. They even tried to get in the home computer market with the PCjr.

Along the way, IBM spent millions on copiers (later sold to Kodak), Rolm (sold to Siemens), Satellite Business Systems (shut down), the Prodigy network (which evolved into an ESPN website and a Yahoo content portal), as well as software products including SAA, TopView, OfficeVision, and OS2.

In the early 2000s, IBM was close to collapsing under its own weight. It diversified, sold off, or closed down most of these product lines and focused on world wide professional services.

When a company becomes incredibly successful, it invariably plants the seeds for its future problems.

Take Microsoft, without a doubt the most successful company in the software field. Microsoft has been heard to say it intended to aggressively seek the dominant share in every major software applications category in the personal computer field with a goal to have as much as a 70 percent share in every major software category.

Microsoft Corp has continued on its quest in line extension with online products (MSN), games (Xbox), and smart phones and mobile devices (Windows Mobile). Even with challengers in all these categories, as of 2008, MSFT had a global annual revenue over $60B with nearly 90,000 employees in 105 countries. It develops, manufactures, licenses, and supports a wide range of software products for computing devices.

However, there continues to be ominous signs of softness in Microsoft’s overall strategy.

Whom does that sound like – IBM? Microsoft is setting itself up for a collapse along the lines of IBM ten years earlier.

When you try to be all things to all people, you inevitably end up in trouble. “I’d rather be strong somewhere,” said one manager, “than weak everywhere.”

In a narrow sense, line extension involves taking the brand name of a successful product and putting it on a new product you plan to introduce.

It sounds so logical. But marketing is a battle of perception, not product.

There are as many ways to line extend as there are galaxies in the universe. And new ways get invented every day. In the long run and in the presence of serious competition, line extension almost never works.

In spite of evidence that line extensions don’t work, companies continue to pump them out. Here are some examples

Ivory soap. Ivory shampoo?
Life Savers candy. Life Savers gum?
Bic pens. Bic lighters?
Tanqueray gin. Tanqueray vodka?
USA Today. USA Today on TV?

Why does top management believe that line extension works, in spite of the overwhelming evidence to the contrary? One reason is that while line extension is a loser in the long term, it can be a winner in the short term (previous blog post titled The Law of Perspective). Management is also blinded by an intense loyalty to the company or brand.

More is less. The more products, the more markets, the more alliances a company develops, the less money it makes. “Full-speed ahead in all directioins” seems to be the call from the corporate office. When will companies learn that line extension ultimately leads to oblivion?

Less is more. If you want to be successful today, you have to narrow the focus in order to build a position in the prospect’s mind.

In the conventional view, a business strategy usually consists of developing an all-encompassing vision. In other words, what concept or idea is big enough to hold all of a company’s products and services on the market today as well as those that are planned for the future?

In the conventional view, strategy is a tent. You stake out a tent big enough so it can hold everything you might possible want to get into.

For many companies, line extension is the easy way out. Launching a new brand requires not only money, but also an idea or concept. For a new brand to succeed, it needs to be first in a new category (previous post titled The Law of Leadership). Or the new brand needs to be positioned as an alternative to the leader (previous post titled The Law of the Opposite). Companies that wait until a new market has developed often find these two leadership positions already preempted. So they fall back on the old reliable line extension approach.

The antidote for line extension is courage, a commodity in short supply.

It takes a while but many Internet Marketing entrepreneurs resist the pressure to extend the equity of their brand. As a result, they participate in Affiliate Marketing programs. They use various methods, tools, and follow a traffic formula to build relationships with their leads and customers. They build websites that create trust. They collect name and email addresses using an Optin form on a Landing Page. They use email systems with both auto-responders and broadcast capabilities in order to send messages to their leads and customers. These email messages frequently send information, provide knowledge, and occasionally promote an offering. Many Internet Marketing entrepreneurs learn that leads and customers do not like to be sold to however they will browse and shop. Over an extended period of time, skilled Internet Marketers are able to use hypnotic writing skills, in their marketing campaigns, to get leads and customers to take the action they want. This is how they learn to add value and leverage the equity in their list and be successful in the world that includes the Law of Line Extension.

It looks easy but marketing is not a game for amateurs. Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of Line Extension as there is an irresistible pressure to extend the equity of their brand.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Finally, a great book to read is "The 22 Immutable Laws of Marketing" by Ries & Trout. It is the source of some of the material provided in this article.

In closing, be sure to meet me at my website, WhoIsMikeFarrell, learn some tips about being No 1 on Google at aspenIbiz My Go-To-Market Partners, my affiliate website, and learn how to be savvy with your money like the insiders at aspenIbiz The Conspiracy For Your Money Blog.

Thursday, September 30, 2010

The Law of Perspective – Marketing Effects Take Place Over an Extended Period of Time

Is alcohol a stimulant or is it a depressant?

If you visit almost any bar and grill on a Friday night after work, you would swear that alcohol was a stimulant. The noise and laughter are strong evidence of alcohol’s stimulating effects. Yet at 4:00 in the morning, when you see a few happy-hour customers sleeping it off in the streets, you would swear that alcohol is a depressant.

Chemically, alcohol is a strong depressant. But in the short term, by depressing a person’s inhibitions, alcohol acts like a stimulant.

Many marketing moves exhibit the same phenomenon. The long-term effects are often the exact opposite of the short term-effects.

Does a sale increase a company’s business or decrease it? Obviously, in the short term, a sale increases business. But there is more and more evidence to show that sales decrease business in the long term by educating customers not to buy at “regular” prices.

Aside from the fact that you can buy something for less, what does a sale say to a prospect? It says that your regular prices are too high. After the sale is over, customer’s tend to avoid a store with a “sale” reputation.

To maintain volume, retail outlets find they have to run almost continuous sales. It is not unusual to walk down a retail block and find a dozen stores in a row with “Sale” signs in their windows.

Have the automobile rebate programs increased sales? The rise of auto rebates has coincided with a decline in auto sales. U.S. vehicle sales have declined for five straight years in a row.

There is no evidence that couponing increases sales in the long run. Many companies find they need a quarterly does of couponing to keep sales on an even keel. Once they stop couponing, sales drop off.

In other words, you keep those coupons rolling out not increase sales but to keep sales from falling off if you stop. Couponing is a drug. You continue to do it because the withdrawal symptoms are just to painful.

Any sort of couponing, discounts, or sales tends to educate consumers to buy only when they can get a deal. What if a company never started couponing in the first place? In the retail field the big winners are the companies that practice “everyday low prices”; companies like Wal-mart and K Mart and the rapidly growing warehouse outlets.

Yet almost everywhere you look you see yo-yo pricing. The airlines and supermarkets are two examples. Recently, however Proctor & Gamble made a bold move to establish uniform pricing which could become the start of a trend.

In everyday life there are many examples of short-term gains and long-term losses, crime being an example. If you a rob a bank for $100,000 and wind up spending 10 years in jail; you either made $100,000 for a day’s work or $10,000 a year for 10 years of labor. It all depends on your point of view.

Inflation, or the recent government stimulus (cash for clunkers comes to mind), can give an economy a short-term jolt but in the long run, inflation leads to recession or a Great Deflation as is being experienced in the U.S. at this time (circa 2010).

In the short term, overeating satisfies the psyche but in the long run it causes obesity and depression.

In many other areas of life (spending money, taking drugs, having sex) the long-term effects of your actions are often the opposite of the short-term effects. Why then is it so hard to comprehend that marketing effects take place over an extended period of time?

Take line extension. In the short term, line extension invariably increases sales. The beer industry clearly illustrates this effect.

Look what happened to Coors. The introduction of Coors Light caused the collapse of Coors regular; which today sells one fourth of the volume it used to sell.

In the short term, both brands can co-exist and do well. But in the long term, line extension was bound to undermine one or the other of the two brands. Once the decline starts, it is almost impossible to stop.

Unless you know what to look for, it is hard to see the effects of line extension, especially for managers focused on their next quarterly report. (If a bullet took five years to reach a target, very few criminals would be convicted of homicide.

In other areas of marketing, the short-term / long-term line extension effects occur much more rapidly. Let’s look at what happened to Donald Trump. At first, The Donald was successful. He then branched out and put his name on anything for which the banks would lend him money; hotels, casinos, condominiums, an airline, and a shopping center. Many asked, what is a Trump? What does Trump mean?

Fortune magazine called Trump an investor with a keen eye for cash flow and asset values, a smart marketer, a cunning wheeler-dealer. The Donald has been on the cover of many magazines.

At various points in time, Trump has declared bankruptcy. What made The Donald successful in the short term is exactly what cause him to fail in the long term – line extension.

It looks easy, but marketing is not a game for amateurs.

It takes a while but many Internet Marketing entrepreneurs recognize marketing effects take place over an extended period of time and as a result, they use various methods and tools to build relationships with their leads and customers. They build websites that create trust. They collect name and email addresses using an Optin form on a Landing Page. They use email systems with both auto-responders and broadcast capabilities in order to send messages to their leads and customers. These email messages frequently send information, provide knowledge, and occasionally promote an offering. Many Internet Marketing entrepreneurs learn that leads and customers do not like to be sold to however they will browse and shop. Over an extended period of time, skilled Internet Marketers are able to use hypnotic writing skills, in their marketing campaigns, to get leads and customers to take the action they want. This is how they learn to add value and be successful in the world that includes the Law of Perspective.

Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of Perspective as marketing effects take place over an extended period of time and requires not only perspective but also persistence.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Finally, a great book to read is "The 22 Immutable Laws of Marketing" by Ries & Trout. It is the source of some of the material provided in this article.

In closing, be sure to meet me at my website, WhoIsMikeFarrell, learn some tips about being No 1 on Google at aspenIbiz My Go-To-Market Partners, my affiliate website, and learn how to be savvy with your money like the insiders at aspenIbiz The Conspiracy For Your Money Blog.

Tuesday, August 31, 2010

The Law of Division - Over Time A Category Will Divide Into Two or More Categories

Like an amoeba dividing in a petri dish, the marketplace can be viewed as an ever-expanding sea of categories. During my career as a management consultant with Deloitte, I experienced this Law of Division many times.

I joined Deloitte when the consulting profession, within the Big 4 (Big 8 at that time) Accounting and Consulting firms, was in its formulative stage. At that time, the consulting business was a single entity.

Over time, we divided into Advisory Services, Implementation Services, and Quality Review Services. These various service categories further divided into Strategy, Operations, Organization, and Technology specialties. These categories divided again according to industry specialties such as Telecommunications, Technology, Financial Services, Healthcare, Consumer Product Goods, and so forth.

Another division occurred according to geography in terms of Emerging Markets and the Industrialized Regions; and then there was another layer of specialty in terms of the Americas, EMEA (Europe, Middle East and Americas), as well as APAC (Asia Pacific Countries) regions.

While at times these layers of granularity and focus were done for internal purposes, a majority of the time it was the marketplace valuing expertise according to these categories. Each step of the way, we would face new competitors and had to learn how to adapt to these new entrants to the consulting business.

Like the consulting business, the automobile industry started off as a single category. Three brands (Chevrolet, Ford, and Plymouth) dominated the market. The category then divided and today we have luxury cars, moderately priced cars, and inexpensive cars. We also have full-size cars, intermediates, and compacts. And we have sports cars, four-wheel-drive vehicles, RVs, SUVs, and minivans; another example of the ever-expanding sea of categories.

In the television industry, ABC, CBS, and NBC once accounted for 90 percent of the viewing audience. Now we have network, independent, cable, pay, and public television with both instore, interactive, and even IPTV networks (niche oriented programming streaming across the internet) … ever watch CNBC online? This programming is available on both my cable TV network and on my PC or laptop (at no charge).

Beer started the same way. Today we have imported and domestic beer; premium and popular-priced beers; light, draft, and dry beers; we even have non-alcoholic beer.

Each segment is a separate and distinct entity. Each segment has its own reason for existence. And each segment has its own leader which is rarely the same as the leader of the original category.

In the computing world, IBM is the leader in mainframes; HP in mid-range computers; Dell and Apple in laptops; and Sun, now a part of Oracle has been the leader in workstations.

Instead of understanding this concept of division, many corporate leaders hold the naïve belief that categories are combining. Synergy and its kissing cousin, the corporate alliance, are the buzzwords in the boardrooms around the planet.

We saw AOL and Time Warner combine to take advantage of the convergence of television, music, publishing, and computing. How did that work out?

Benefits from synergy, and mega mergers, are seldom realized. Categories are dividing, not combining, into a sea of niche categories (and this is well described by Chris Anderson in his book The Long Tail: Why the Future of Business is to Sell Less of More).

The riches are in the niches.

The way for the leader to maintain its dominance is to address each emerging category with a different brand name as General Motors did with Chevrolet, Pontiac, Oldsmobile, and Cadillac.

What keeps leaders from launching a different brand to cover a new category is the fear of what will happen to their existing brands. General Motors was slow to react to the super-premium category that Mercedes-Benz and BMW established. One reason was that a new brand on top of Cadillac would enrage GM’s Cadillac dealers.

Contrast this with an operating principle of Andy Grove, former CEO and Chairman of the Board of Intel, the world’s largest semiconductor chip maker and one of the world’s most admired companies, where “only the paranoid survive.” Essentially this principle drove Intel to cycles of survival and leadership based on an ability to cannibalize themselves and make the leap to cross the chasm into the next product area. They were continually dividing successful product areas into new categories generating wildly successful and profitable new markets and avoided joining others at the bottom of the high tech abyss.

As an Internet Marketing professional, you need to understand the Law of Division. As a product category divides, there are leadership opportunities to rush in and become No 1 in one or more of the new categories.

Timing is also important but you have to have the courage or the money to hang in there long enough for the category to develop.

It is better to be early than late. You can not get into the prospect’s mind first (as described in Law No 1 of Leadership) for a category unless you are prepared to spend some time waiting for things to develop.

Many Internet Marketing entrepreneurs are using techniques and tools like mind-mapping, keyword research, Attraction Marketing Formula, Magnetic Sponsoring, and MindMeister to conduct the market research and plan a successful marketing campaign. They then use the power of MyStory marketing, brand You Inc, and hypnotic writing skills, in their marketing campaigns, to deal realistically with the position of their brand and the strategy they want to pursue in the world that includes the Law of Division.

The goals is to not emphasize why their offering is better, feature and function-wise, over a competitor’s but to develop a message that is recognized, accepted, and agreed to so that it will seduce and persuade a customer, in the new category, that what is offered to the target market is real and will work for them.

Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of Division and if you are not the leader then you must monitor the marketplace and as a category divides, be prepared to rush in to be No 1 in one or more of the new categories.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Finally, a great book to read is "The 22 Immutable Laws of Marketing" by Ries & Trout. It is the source of some of the material provided in this article.

Tuesday, July 13, 2010

Shanghai Is Not What You Would Expect When You Visit the World’s Largest Emerging Market

In 1982, early in my Management Consulting career with Deloitte, a Big 4 (Big 8 at that time) Accounting and Consulting firm, I made my first to trip to China. I was on an engagement in the Middle East at the time and our client was Saudi Arabian Airlines. I was based in Jeddah, Saudi Arabia however worked with clients and traveled extensively throughout the region.

As part of the project, I had the opportunity to visit Hong Kong and Beijing however every one told me to avoid Shanghai as it was dreary and in the dumps. Today, Shanghai is not the kind of city most expect to see when they visit the world’s largest Emerging Market.

Amazingly, the Pudong area, which is ground zero of the hustle and bustle of Shanghai and representative of the China Dream, did not even exist 20 years ago.

Construction on the New Open Economic Development Zone, which has grown to become China’s pulsing financial and commercial hub, only really began in the early 1990s, right around the time the nation’s economy embarked on a two-decade long, double-digit annual growth rate transformation.

This (the unapologetically capitalistic city seems to scream out) is what, Made in China, built for us.

While the Developed world spent the better part of the last few decades buying knick-knacks they didn’t need with money they didn’t have, China Inc. got busy both producing those same products, and lending the world’s consumers the money with which to buy them. The result is one of the largest trade imbalances in modern economic history. At a staggering $2.4 trillion, the Middle Kingdom’s foreign reserve stockpile is by far the largest in the world. And, although a not-insignificant $900 billion of those reserves are held in steadily depreciating greenbacks (not to mention a large euro holding), the Chinese are wasting no time converting those paper cash piles into tangible asset stakes.

Also, China has been on a resource-buying binge over the past ten years, inking deals with major mining companies from Africa to Australia, South America, The Middle East and all over Asia.

Just last month China signed more than $8.8 billion of new commercial and mining deals with resource giant Australia, despite its southern neighbor’s onerous new resource profits tax laws. The Middle Kingdom’s voracious industrialization inhaled around $41.7 billion worth of Australia’s minerals in 2009, including almost $20 billion of iron ore and concentrates.

Last year China also became Brazil’s number one trading partner when it agreed to lend $10 billion to Petrobras in return for guaranteed oil supply over the next decade. I invite you to read here my recent article “Energy is One of the 5Es of the Evaluation Framework” that contains a discussion about this transaction between Brazil and China. Other projects between China and its South American BRIC counterpart included a $5 billion steel plant at the Acu port in Rio de Janeiro. This deal represents China’s largest ever investment in Latin America’s richest resource economy and its biggest foreign steel-plant investment.

The world’s fastest growing economic superpower is also looking closer to home in an effort to feed its unwavering appetite and to divest itself of paper promises.

“Central Asia is rich in mineral resources, particularly rare metals, copper and gold that China needs for economic growth,” President Hu Jintao announced on a recent visit to Central Asia, where he signed gas and nuclear agreements and promised cooperation in port construction and transportation infrastructure. I invite you to read here my recent article on China and rare earths.

Conspicuously absent from these and a slew of other high profile deals were the “emerged” markets. While the Petrobras deal was going down, for instance, politicians in the US were eagerly handing out hundreds of billions of other people’s dollars to Goldman Sachs (via AIG), and bribing its citizens to purchase new kitchen appliances, most of which were probably made in China anyway.

Of course, all this stimulation comes at a terrible cost. Not only must the US economy swallow the opportunity cost (of the goods and services that might have been produced had those trillions not been siphoned off to bailout the nation’s failed banking, insurance, and auto industries), it must also contend with seemingly uncontrollable debt loads.

Barely 9 months into the current financial year, the US in the past few weeks, passed the $1 trillion annual deficit mark. Though marginally smaller than last year’s total at this point, such a figure is hardly a cause for celebration.

The world’s most indebted economy – on a gross basis – is also notching up a worrying tally of single day records.

The Washington Times reports:
- The largest one-day increase in USA national debt was on June 30 (circa 2010) and it totaled $165,931,038,264.30.
- This one day amount is bigger than the entire annual deficit for fiscal year 2007.
- It is larger than the $140 billion in savings the new health care bill will produce over its first 10 years.
- The one day amount works out to nearly $1,500 for every US household, or more than 10 times the median daily household income.

And now that the future demand has been brought forward, through “Cash for Clunkers” and other government stimulus and spending programs, the USA is struggling to keep its economy afloat. The citizens of the USA have allowed their government to essentially spend their personal savings AND their future earnings.

Meanwhile, China is struggling to cool its own economy down. It is all the government can do to keep a lid on growth at 11.9%, the figure recorded in the first quarter of this year. Stronger domestic demand and a rebound in exports forced the International Monetary Fund to upwardly revise its outlook for China’s 2010 GDP, from 10% to 10.5%. Housing prices are still rising by an incredible 12.4% per month, according to the latest available figures, even after Beijing introduced a series of tightening measures aimed at dampening real estate speculation. I invite you to read here one of my recent blog posts about China trying to cool their economy.

Almost nobody expects China to keep such a breakneck pace. In fact, many are warning of sharp corrections ahead. As many are well aware, nothing moves up or down without (sometimes major) corrections. Straight lines are for geometry classes, not markets. Over the long haul, however, the trend is pretty clear. I invite you to read here one of my recent blog posts about the Chinese economy being out of control.

While it may seem like it is Time to Exit the Dragon, it’s difficult to imagine the emerging middle-class consumers of China returning to the lot of lowly-paid factory workers without a struggle. It is almost as difficult to imagine an American working for less than the minimum wage but it might soon be a reality for the American worker. This situation will probably awaken the Free Agent Entrepreneurial desire among many to consider a shift from a W2 wage system to a 1099 ownership system and lifestyle. I invite you to read here an article about Looking to Retool as a Digital Entrepreneur.

Many still see China as a ripe buying opportunity but this is not the kind of wealth creating opportunity that you are likely to see in the headlines of the evening business news and that is why those who know they need to be savvy with their money, like the insiders, belong to a wealth creating community.

They gain the necessary financial education and they obtain association with, access to, and membership in a wealth creation community to regain control over their financial lifestyle. As a result, they obtain examples of alternative wealth creation strategies such as debt reduction, asset protection, and wealth acceleration with investments in items such as precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

I trust this article provides a little more insight into the global economy and while some may say it is Time to Exit the Dragon, others highlight what may be ripe buying opportunities among a handful of Chinese companies that trade in US Indexes, or as ADRs, and have extremely attractive valuations.

It is wise to monitor world affairs and consider alternative wealth generating strategies. I will provide updates in future articles and at my blog over the next few weeks.

In closing, I want to thank Joel Bowman of Agora Financial as he was the source of some of the materials about the breakneck growth in China mentioned in this post.

Monday, June 28, 2010

Internet Marketing for the Digital Entrepreneur, explains Mike Farrell aspenIbiz

As a result of the job loss situation and the poor economy, there are numerous Digital Entrepreneurs considering an Internet Based business where they leverage a suite of best practices, Internet software tools, education, and support in a community of gifting colleagues thereby placing themselves at the center of the New Economy 2.0 & the Ascendancy of the Entrepreneur.

Innovation on the internet is proceeding at a super-fast pace. Phone books are going away … print advertising is disappearing … at any time over 1.5B people are searching for something on the Internet.

When you buy something on the Internet, you want to buy from someone that you believe is an authority and someone that you can trust. As a result, there is certainly innovation occurring on the Internet with the Web 2.0 technologies that include social networking, blogs, video-sharing channels, and micro-blogging … these are being used by agents and representatives with home-based businesses to become a trusted authority.

A few years ago during my career with Deloitte, a Big 4 Accounting and Consulting Firm, I worked on a consulting project with Microsoft in Redmond and lead teams undertaking marketing and advertising activities as part of a very large product launch. Our team was fond of a saying, “a fool with a tool is still a fool.”

In order to be effective and not be foolish by solely emphasizing technology during the product launch, it was important for our team to understand how the rules of marketing and PR (public relations) in the offline world had evolved and merged into a set of new rules for Marketing and PR in the New Economy 2.0 of the Internet.

In the offline world, marketing is a one-way interruption with yesterday’s message. Here is a listing of several of the old rules of marketing and advertising:

- marketing simply meant advertising (and branding);

- advertising needed to appeal to the masses;

- advertising relied on interrupting people to get them to pay attention to a message;

- advertising was one-way – company to consumer;

- advertising was exclusively about selling products;

- advertising was based on campaigns that had a limited life;

- creativity was deemed the most crucial component of advertising;

- it was more important for the ad agency to win advertising awards than for a client to win new customers; and

- advertising and PR were separate disciplines run by different people with separate goals, strategies, and measurement criteria.

In the offline world, PR is a money pit of wasted resources dealing with the journalistic black hole. The following old rules of PR are becoming obsolete:

- the only way to get ink and airtime was through the media;

- companies communicated to journalists via press releases;

- nobody saw the actual release except a small number of reporters and editors;

- companies had to have significant news before they were allowed to write a press release;

- jargon was okay because the journalists all understood it;

- you were not supposed to send a press release unless it included quotes from third parties, such as customers, analysts, and experts;

- the only way buyers would find out about the press release’s content was if the media wrote a story regarding it;

- the only way to measure the effectiveness of press releases was through “clip books” which noted each time the media decided to pick up a company’s release; and

- PR and marketing were separate disciplines run by different people with separate goals, strategies, and measurement techniques.

Marketing in the online world is not about generic banner ads built to trick people with neon colors or wacky movement. It is about understanding the keywords and phrases that buyers in your target market are using, and designing and activating a series of micro-campaigns to drive buyers to pages that are full of the content they seek.

In order to do this effectively, it is best to understand the new rules of Marketing and PR in the online world that are listed below:

- Marketing is more than just advertising;

- PR is for more than just a mainstream media audience;

- Your are what you publish;

- People want authenticity not spin;

- People want participation not propaganda;

- Instead of causing one-way interruption, marketing is all about delivering content at just the precise moment your audience needs it;

- Marketers must shift their thinking from mainstream marketing to the masses to a strategy of reaching vast numbers of underserved audiences via the Web;

- PR is not about your boss seeing your business on TV - it is about your buyers seeing your company on the internet;

- Marketing is about your organization winning business - not about your ad agency winning awards;

- The Internet makes public relations public again, after years of almost exclusive focus on media;

- Companies must drive people into the purchasing process with great online content;

- Blogs, online video, ebooks, news releases, and other forms of online content let organizations communicate directly with buyers in a form they appreciate; and

- In the internet, the lines between marketing and PR have blurred.

In the offline world, marketing and PR are separate departments with different people and different skill sets. In the online world, marketing, advertising, and PR are converging hence there is just one set of Internet Marketing rules for the Digital Entrepreneur to follow.

People do not like to be sold to, however people want to shop and buy.

Great content helps potential buyers see you, relate to your brand, and understand and value what you have to offer (your products).

By utilizing hypnotic writing, your content will drive a (lead and/or) customer to take the action you want!

Internet Marketing for the Digital Entrepreneur is not a battle of products … it is about using multiple online tools all directed toward increasing the visibility of brand You Inc, generating viral and word-of-mouth online awareness, and utilizing key tactics to ensure success in the knowledge economy.

The Internet provides opportunities you never had before. Internet Marketing is all about selling anything, to anyone, at any time, anywhere in the world!

Finally, a great book to read is "The NEW RULES of MARKETING & PR" by David Meerman Scott. It is the source of a majority of the old rules and new rules listed in this article. This book also contains an action plan that can be followed to harness the power of the NEW RULES!

In closing, be sure to meet me at my website, WhoIsMikeFarrell, learn some tips about being No 1 on Google at apenIbiz My Go-To-Market Partners, my affiliate website, and learn how to be savvy with your money like the insiders at aspenIbiz The Conspiracy For Your Money blog.

Saturday, May 22, 2010

The Law of the Opposite - Your Internet Marketing Strategy is Determined by the Leader ... explained by Mike Farrell aspenIbiz

There are laws of nature so why shouldn’t there be laws of marketing? You can build a great-looking airplane but it is not going to get off the ground unless it adheres to the laws of physics, especially the law of gravity.

So it follows that you can build a brilliant marketing program only to have one of the laws of marketing knock you flat if you don’t know what they are.

One of the laws is the Law of the Opposite.

In strength there is weakness. Wherever the leader is strong, there is an opportunity for a would-be No 2 to turn the tables.

Much like a wrestler uses his opponent’s strength against him, a company should leverage the leader’s strength into a weakness.

If you want to establish a firm foothold on the second rung of the ladder, study the company above you. Where is it strong? And how do you turn that strength into a weakness?

You must discover the essence of the leader and then present the prospect with the opposite. In other words, don’t try to be better, try to be different. It is often the upstart versus the old reliable.

Coca Cola is a 100 year old product. Only seven people in the history of the world have known the Coke formula which is kept in a locked safe in Atlanta. Coca Cola is the old, established product. However, using the Law of the Opposite, Pepsi Cola reversed the essence of Coca Cola to become the choice of a new generation, the Pepsi Generation.

In other words, by positioning yourself against the leader, you take business away from all the other alternatives to No 1. If old people drink Coke and young people drink Pepsi, there is nobody left to drink other brands in the cola beverage category.

Sometimes you need to be brutal.

Scope, the good tasting mouthwash, hung the medicine breath label on its Listerine competition. But don’t simply knock the competition. The Law of the Opposite is a two-edge sword. It requires honing in on a weakness that your prospect will quickly acknowledge.

One whiff of Listerine and you know that your mouth would smell like a hospital. Then quickly twist the sword. Scope is the good-tasting mouthwash that kills germs.

Marketing is often a battle for legitimacy. The first brand that captures a concept is often able to portray its competitors as illegitimate pretenders. A good No 2 can not afford to be timid!

As an Internet Marketing professional, you need to understand the Law of the Opposite. If you are not the leader in a product category but want to be a strong second, you need to position yourself opposite the leader because every market becomes a two horse race (as described in No 8, the Law of Duality).

Many Internet Marketing entrepreneurs are using techniques and tools like mind-mapping, keyword research, Attraction Marketing Formula, Magnetic Sponsoring, and MindMeister to conduct the market research and plan a successful marketing campaign. They then use the power of MyStory marketing, brand You Inc, and hypnotic writing skills, in their marketing campaigns, to deal realistically with the position of their brand and the strategy they want to pursue in the world that includes the Law of the Opposite.

The goals is to not emphasize why their offering is better, feature and function-wise, over a competitor’s but to develop a message that is recognized, accepted, and agreed to so that it will seduce and persuade a customer that what is offered to the target market is real and will work for them.

Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of the Opposite and if you are not the leader then you must do the opposite of the leader to appeal to the group that does not want to buy from the leader.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Tuesday, April 27, 2010

The Law of Duality - Every Market Becomes a Two Horse Race, explained by Mike Farrell with aspenIbiz

Early in the lifecycle of a product category, a product ladder with many rungs is formed. Gradually, the ladder becomes a two-rung affair.

In batteries, it’s Eveready and Duracell. In rent cars, it is Hertz and Avis. In hamburgers it is McDonald’s and Burger King. In toothpaste, it’s Crest and Colgate.

The Law of Duality suggests that over the product category’s lifecycle, the lower rungs on the ladder will lose market share and disappear; the top rung will lose market share, and the No 2 rung on the product ladder will gain market share ensuring the market is a two-horse race.

Are the results preordained? Of course not. There are other laws of marketing that can also affect the results.

Furthermore, your marketing programs can strongly influence your sales, provided they are in tune with the laws of marketing. For example, instead of going out and attacking two strong leaders, what you can do is carve out a profitable niche (like Crest prevents cavities as described in No 5, The Law of Focus).

Knowing that marketing is a two-horse race in the long run can help you plan strategy in the short run.

It often happens that there is no clear-cut No 2. What happens next depends on how skillful the contenders are.

What is especially tragic from the economy’s perspective are the resources wasted in many high value product categories, however this is the cost of capitalism.

Look at the history of the automobile industry in the USA. In 1904, 195 different cars were assembled by 60 companies. Over the next 10 years, 531 companies were formed and 346 perished. By 1923, only 108 car makers remained. This number dropped to 44 by 1927. Today, Ford is on the top rung of the product ladder with General Motors and Chrysler fighting for the second rung on the ladder.

Successful marketers concentrate on the top two rungs. Jack Welch, during his reign as chairman of General Electric, said “Only businesses that are No 1 or No 2 in their markets could win in the increasingly competitive global arena. Those that could not be No 1 or 2, were fixed, closed, or sold.”

This kind of thinking has build companies like Procter & Gamble into powerhouses where it is either No 1 or No 2 in more than 80% of its product categories.

Early in a product lifecycle, the No 3 or No 4 rung on the product ladder looks attractive. Sales are increasing. New and relatively unsophisticated customers are coming into the market. These customers don’t always know which brands are the leaders so they pick ones that look interesting or attractive … hence the interest by many Internet Marketing professionals in MyStory marketing and brand You Inc. Quite often, these brands turn out to be the No 3 or No 4 rung on the product ladder.

As time goes on however these customers get educated. They want the leading brand based on the naïve assumption that the leading brand must be better.

The customer believes that marketing is a battle of products. It is this kind of thinking that keeps two brands on the top. Customers think the top two brands “must be the best because they are the brand leaders.”

As an Internet Marketing professional, you need to understand the Law of Duality. In order to compete, use brand You Inc and MyStory marketing methods and techniques to create your own product category or define a niche where you can be the leader and hold the top rung of the product category ladder (as described in No 7, the Law of the Ladder).

Many Internet Marketing entrepreneurs are using techniques and tools like mind-mapping, keyword research, Attraction Marketing Formula, Magnetic Sponsoring, and MindMeister to conduct the market research and plan a successful marketing campaign. They then use the power of MyStory marketing, brand You Inc, and hypnotic writing skills, in their marketing campaigns, to deal realistically with the position of their brand in the world that includes the Law of Duality. The goals is to not emphasize why their offering is better, feature and function-wise, over a competitor’s but to develop a message that is recognized, accepted, and agreed to so that it will seduce and persuade a customer that what is offered is real and will work for them.

Marketing is not a battle of products. It is all about the strategy you use to benefit from the Law of Duality to ensure your brand and product is one of the top two brands of the product ladder as the market becomes a two horse race.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

Thursday, March 25, 2010

Business Sours on China

A few years ago, I was in China on a business trip.

At the airport, as I was leaving, the departure authorities asked if I was leaving with any RMB (Chinese currency). Knowing that I was under the allowable $10,000 amount, I told him I had 3,500RMB (approx $500USD). He gasped like I was some crook. He had several others rush over. They huddled and he then told me I had to get out of line and go exchange all my RMB to USD.

I asked why (since I was under the limit)? The only answer I got was that it was illegal to carry that much RMB out of the country. I was surprised! I explained that I was returning in a few weeks and would use the RMB I had on me, at that time (saving some exchange fees) and that I had done this before. They did not care - I was told I could not leave with the RMB and needed to exchange them for USD.

A few days later, it was widely reported in the press that China was adjusting the peg of the RMB to the USD and after the adjustment, those RMBs would be worth more USDs - China was just trying to keep the more valuable stuff, ie the RMB, local and not out floating on the world wide economy.

The real target of this activity was to reduce currency speculation, where the currency would leave the country weaker than the value of the currency when it returned to the country. This is a natural reaction when a country knows it is increasing the value of its currency.

While this just may seem to be an oddity of conducting business on the global stage, it is similar to conditions that are now also occurring.

In a previous post on this blog “Is the Chinese Economy Out of Control?”, it was mentioned that due to the size of stimulus provided during the GFC, in a very short time by the Chinese government, there will likely be some serious unintended consequences.

These unintended consequences could manifest themselves in terms of foreign policy or China becoming more assertive on the global stage.

There are many recent developments within China indicating it is now asserting itself on the global stage causing global businesses to sour on China. These are examples of the unintended consequences mentioned in the previous blog post.

When China was admitted to the World Trade Organization in 2001, it affirmed its emphasis on opening its economy to foreign business however these recent developments are indicating a tilt toward promoting dominant state owned companies, again, an example of unintended consequences.

The ongoing Google incident, where Google who has had troubles with China’s censorship rules, has recently experienced intense hacking attacks against its network, providing an opportunity for a local Chinese search engine to dominate an Internet market of 400 million uses.

Another example is the bullying associated with the drummed up “spying charges” against executives (based in China) of Rio Tinto, a resource and mining company with headquarters in Australia. The charges were later reduced to bribery after China obtained significantly lower iron ore prices for long term contracts.

Coca-Cola recently had a bid, for a local Chinese juice company, not accepted by government regulators on the grounds that if the acquisition went through, consumer prices would increase and smaller companies would be crowded out of the market (even though the company that was to be combined with Coke) would hold about 20% market-share … this led to calls that the Chinese were protectionists (of their local markets) and raising trade barriers.

Technology executives are highlighting that recently issued procurement rules in China are favoring “indigenous innovation” limiting access by foreign suppliers to tens of billions of dollars of contracts for computers, telecommunications gear, and office equipment.

Foreign makers of wind turbines and solar panels say they are being shut out of big renewable-energy projects in China or being forced to license production to local companies at prices set by the government.

It is also becoming clear that China feels it has less need for foreign funds. A few days ago, China’s Premier, Wen Jiabao, told the Americans to stuff it and strongly defended what amounts to China’s policy of currency manipulation.

In what amounted to an extension of its reach in the global economy, Wen warned various world leaders that removing stimulus too early would lead to second dip in the global recession.

Wen also defended China's currency manipulation. Defying the global consensus, Wen said, "I don't think the yuan is undervalued. We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency."

In a floating-exchange rate world, no one forces a currency to appreciate. If people don't want to own it for yield or sound monetary and fiscal policies, it's hard to "force" a currency to rise. You can, however, forcibly depreciate your currency by selling it and buying others. And that's exactly what China's been doing for years.

To be fair, China's currency manipulation is a form of economic stimulus. By pegging, or linking, it's currency to the U.S. Dollar, China engages in a kind of perpetual devaluation. It preserves the price competitiveness of Chinese exporters. And more importantly for China's economy, a humming export engine keeps employment high, achieving the primary goal of political stability.

But there is no doubt that China's currency policy is costing jobs in the Western world.

In the meantime, deleveraging activities of the household and the private sectors in the Western world, along with Euro weakness, are increasing the demand for the dollar. While these trends can see-saw a bit, these currencies are moving relative to one another, however relative to gold and other tangible things, all of them will lose value. The U.S. Dollar is bad. But it is less bad than the Euro at the moment.

All of this currency movement is adding to the tension between an already tense U.S. & China relationship and essentially goading the U.S. Congress to take some action.

As the banker to the U.S. (meaning the largest buyer of U.S. debt), many suggest it is best to not irritate the banker as they may stop lending money to the U.S. If China were to stop buying U.S. debt, yields on the 10 year note would take off like a rocket causing runaway inflation, and that would be bad, very bad!

I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy (including the interaction of the currency and debt markets) will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.

To gain the necessary financial education, it is best to obtain association with, access to, and membership in a wealth creation community. As a result, you will obtain examples of alternative wealth creating strategies such as debt reduction, asset protection, and wealth acceleration with investments in items such as precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

I trust this article provides a little more insight into the global economy, why we have mutually dependent economies, and serious unintended consequences that are brewing as a result of TARP and Economic Stimulus. As China becomes more assertive on the global stage, they feel they have little to learn from the rich nations of the West, since they widely believe the financial crisis was caused by a blow-up of the Western World’s financial system.

It is wise to monitor world affairs and consider alternative wealth creating strategies. I will provide updates in future articles and at my blog over the next few weeks.

Wednesday, March 10, 2010

Is the Chinese Economy Out of Control?

Is China trying to take a shortcut to greatness? To understand what's taking place in China today, we need to rewind the clock about a decade.

At that time the Chinese government chose a policy of growth at any cost. It kept its currency, the renminbi, at artificially low levels against the dollar -- this helped already cheap Chinese-made goods become even cheaper than its competitors.

The global consumers were eager to buy them and China turned into a significant exporter to the US.

If free-market economic forces were at work, the renminbi would have appreciated and the US dollar would have declined. However, if China let its currency appreciate, its exports would have become more expensive and the demand for Chinese products would have declined; thus its economy wouldn't have grown at 10% a year.

But China isn't your long standing democracy and using the government-controlled banking system, China accumulated a couple trillion dollars of foreign reserves in US Dollars and Euros. This had unintended consequences in that it helped keep US interest rates at very low levels and lent a friendly hand in the financing of a huge consumption binge by the US consumer, which was China's largest customer.

The more China sold to the US, the more dollars it accumulated and thus the more US Treasuries it bought, driving down the interest rates in the US. The US consumer was in turn happy to leverage its future (through the "always" appreciating asset, its home) and delighted to consume cheap Chinese-made goods.

This match made in heaven between China and the US consumer worked great as long as housing prices kept rising and like an ATM, housing kept supplying dollars to its owners to spend. But all good things come to an end and great things come to an end with a bang.

Let’s now fast-forward a year. Today the global economy is stabilizing but the US consumers of Chinese-made goods are now deleveraging, unemployment is high, and US banks aren't lending.

Despite this, the Chinese export-based economy has reported a growth rate of 8.7% in 2009. The rest of the world looks at the Chinese growth miracle with envy as it seems that China has figured out economics of the next business cycle. But don't hurry to trade your democracy for an authoritarian system. The Chinese grass is not as green as it appears.

First, one should always be skeptical of economic numbers that are put out by any Government, yet alone the Chinese government. The high growth rate of last year in China occurred when its exports were down more than 25%, tonnage of goods shipped through its railroads was down by double digits, and its electricity consumption fell like a rock.

Second, China will do anything to grow its economy, as the alternatives will lead to political unrest. A lot of peasants moved to the cities in search of higher-paying jobs during the go-go times. Because China lacks the social safety-net of the developed world, unemployed people aren't just inconvenienced by the loss of their jobs, they starve (and this helps explains the high savings rate in China) and hungry people don't complain, they riot! Once you look at what's taking place in the Chinese economy through this lens, then the decisions of its leaders start making sense, or at least become understandable.

Unlike Western democracies, where central banks can pump a lot of money into the financial system but can't force banks to lend or consumers and corporations to spend, China can do both very fast. The Chinese government controls the banks. Thus it can make them lend and it can force state-owned enterprises (one-third of the economy) to borrow and to spend. Also, China can spend infrastructure project money very fast -- if a school is in the way of a road the government wants to build, it becomes a casualty for the greater good without a lot of delay due to environmental or society related concerns.

China has spent a tremendous amount of money on infrastructure over the last decade and there are definitely long-term benefits to having better highways, fast railroads, and more hospitals. But any government is horrible at allocating large amounts of capital. Political decisions (driven by the goal of full or near full employment) are often uneconomical and full of corruption and cronyism that result in projects that destroy value.

Infrastructure and real estate projects are where you get your biggest bang for the buck if your goal is to maintain employment, because they require a lot of unskilled labor. This is where in the past a lot of Chinese money was spent. This also explains why the Chinese keep building skyscrapers even though the adjacent ones are still vacant.

In addition, China has built the largest shopping mall in the world, the South China Mall, which is still 99% vacant years after construction. China also built a whole city, Ordos, in Inner Mongolia, on spec for one million residents who never appeared. China is a less shiny but more drastic version of Dubai.

We look at China and are mesmerized by its 1.3 billion people representing huge target markets. There is speculation that the Chinese consumer will pick up the demand slack for the US and European consumers who are deleveraging and buying fewer Chinese-made goods. This may happen but it will take decades. The US and European consumers are two-thirds of much larger economies. The Chinese consumer is only one-third of the Chinese economy.

We have to remember that economic bubbles are usually just a good thing taken too far. This was the case with railroads in the US in the late 19th century. The railroads were supposed to change the landscape of the US, and they did, but that didn't prevent a lot of them from going out of business first. The Internet was supposed to change how we communicate, and it did, but in the process it generated a tremendous bubble, followed by the loss of wealth for many.

The Chinese economy is no exception. Its long-term future may be bright but in the short run we've got a bubble on our hands. The temporary mirage of economic resiliency must be followed by huge pain and drastic consequences because every cycle has an up and a down. This is a law of nature and the laws of economics do not work differently.

I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy (including the interaction of the currency and debt markets) will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.

As an example of alternative wealth creating strategies … consider investments in precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

I trust this article provides a little more insight into the global economy and the mutually dependent economies. Due to the size of the stimulus provided in a very short time, by the Chinese government, there will likely be some serious unintended consequences that will manifest themselves, also on the world stage. These consequences could express themselves in terms of foreign policy, such as dangerous undercurrents to Taiwan’s peaceful reunification, or in terms of China becoming more assertive on the global stage because they feel they have little to learn from the rich nations of the West, since they widely believe the financial crisis was caused by a blow-up of the Western World’s financial system.

It is wise to monitor world affairs and consider alternative wealth creating strategies. I will provide updates in future articles and at my blog over the next few weeks.

Thursday, March 4, 2010

In 2010, Demand for Commodities is Creating Investment Opportunities

Emerging markets kicked into high gear a few years ago (see previous post on this blog titled “The World’s Center of Gravity is Continuing to Tip in Favor of Emerging Markets”) and this was fully evident in the middle of 2008 as many commodity prices reached all-time highs.

As global demand increased, the prices for commodities like oil, corn, sugar and cotton rose to dizzying heights.

The market cooled off in late 2008 and early 2009 as part of the deleveraging initiated in Phase 1 of the Global Financial Crisis but now commodities are beginning to move back up.

Many commodities have achieved a 50% retracement back up to 2008 highs and this upward movement signals to many a continuing uptrend.

After worldwide demand destruction in late 2008 it appears a solid uptrend is being formed.

This uptrend is a combination of fundamental factors with the most important driver coming from markets like China and India.

These emerging markets consume everything from oil to orange juice, and after the sudden fall of 2008, the craving for so-called luxury goods, from the people of these emerging markets, has just started.

Worldwide demand for these staple commodities (fuel for a car, coffee is a new delicacy, and corn-fed meats on the dinner plate) will continue to rise.

After you get past all the investment bank upgrade and market consensus reports, there are plenty of solid reasons that gold is set to rise in the next 12 months.

From a technical perspective, gold has not reached its inflation-adjusted all-time high. For that to happen, gold would need to be at $2,000 an ounce — a 75% increase from today’s price.

In 2010, this could easily happen. However, a more conservative, yet realistic goal would be $1,500 gold — which could very easily happen in the next 12 months.

Other than technical indicators and charts, there are plenty of fundamental reasons to assume the metal will go higher and two of the most significant reasons are listed below.

First and most importantly is that there is an implicit flaw with Western government funding models. Governments like ours here in the U.S., naturally choose short-term fixes for long-term problems (it probably has to do with the lack of term limits for politicians and frequent re-elections). Most likely these features of our government and political system will not magically change overnight, nor will it likely change by the end of 2010.

So the probabilities are high that fears of inflation will remain large and as a hedge, many will demand gold, hence increasing gold prices. And, as the short-term fixes expose more government-monetized debt, prices of the precious metal will also go higher.

The second reason that gold will shoot to $1,500 in the next 12 months is supply related. Many of the gold fields in South Africa are finding it more difficult and hence more expensive to mine the gold that is deep in the earth. With gold being harder to obtain, the price will be higher due to increased mining costs and inevitably, there will be less supply of gold brought to market due to these expensive mining methods and ongoing difficulty in the mining process.

As demand rises and supply is reduced, you can bet that prices for gold will have nowhere to go but higher than the current $1,100 an ounce.

I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.

As an example of alternative wealth creating strategies … consider investments in precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … perhaps investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

I trust this article provides a little more insight into the world of the commodity markets and with the raging demand due to the rise in the living standards in many of the world’s emerging markets, there are numerous alternative wealth generating opportunities. This increased demand places commodities in a super-cycle that will likely last another decade. In the commodities world, there are no CEOs on the inside cooking the books nor do you have accounting firms puffing up the profits - you just have prices responding to pure supply and demand. This is why many refer to the commodities markets as the last bastion where there is pure capitalism. It is wise to have exposure to the commodities markets as the world’s economies respond to the emerging markets.

I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.

Sunday, February 28, 2010

The World’s Center of Gravity Continues to Tip in Favor of Emerging Economies

Oranges were once expensive luxuries in northern climates.

Today, we take for granted that we can eat apples, oranges, and bananas all year round if we choose. It doesn't matter where you live. We can eat strawberries in the dead of winter. In fact, we routinely enjoy goods that come from places very far from our own doorstep.

Televisions from Taiwan, lettuce from Mexico, shirts from China; goods from faraway places are so common it is easy to forget how recent such miracles of commerce are.

Such miracles of commerce have redrawn the economic map. The emerging markets have "emerged" and big opportunities are emerging in something called the Great Convergence.

In the late 20th century, with the gradual spread of the Industrial Revolution to the developing world, the Western world (ex-Japan) represented 90% of the world's manufacturing output as late as 1953. America's economy alone was nearly half of the world's industrial output.

During this time, the economic gap between China and Western Europe grew very wide when viewed in historic terms. But things changed in the late 20th century. The Great Convergence began. From 1950 on, the world economic growth was quite simply astonishing. We enjoyed a rolling wave of "economic miracles" through the decades. Closed economies opened up and trade expanded.

We can point to the success of postwar Japan and then to the surging tiger economies of East Asia. Singapore, Hong Kong, Taiwan and South Korea grew in leaps and bounds. Finally, we saw the opening up of China, India, Russia and Brazil. The once-bottled-up energies of these countries poured out.

Today, we see the handiwork of the Great Convergence taking shape. The distinctions between "emerging markets" and "developed markets" are starting to disappear. Indeed, the terms may already be obsolete.

The belief that companies in the US, Western Europe or Japan are better managed than in emerging markets is also no longer valid. Anyone who has sat through the parade of fraud and corporate malfeasance of recent years in the US will find it hard to argue otherwise.

The list of corporate thieves is much longer in the US and Europe than in the emerging markets. Management teams in the West no longer dominate when it comes to standards of best practices.

Governments in the West are just as bumbling as those of emerging markets. More and more, it is the Western governments that steal too much. Another distinction blurred.

Emerging markets now make up about half of the global economy and not surprisingly, emerging markets now make up 10 of the 20 largest economies in the world. India is now bigger than Germany. Russia is bigger than the UK. Mexico is bigger than Canada. Turkey is bigger than Australia.

In a stock market sense, these places have also grown up. It used to be that emerging markets were not very liquid or very big. It was not that long ago that the IBM shares changing hands in a single day in New York were worth more than all the shares that traded hands in Shanghai or Bombay.

Today's emerging markets are large and liquid. Chinese markets traded more shares than the NYSE; Hong Kong and Korea traded more than Germany; India traded more than France; and Taiwan traded more than Italy, Australia or Canada.

Emerging market companies are also growing faster. In particular, there are wide gaps in the growth rates of sales and profits. The second key distinction worth noting is that of balance sheet strength. Emerging market companies have less debt and cover their debts more comfortably.

All of this is to point out that investors need exposure to emerging markets, or at the very least, they should not shun them for reasons that are no longer valid.

A good way to get exposure to emerging markets is through the back door, so to speak. Invest in companies, wherever they are, that have what these economies need or want, but don't have or can't make.

I favor a quote from Steve Forbes. Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.

As an example of alternative wealth creating strategies … consider investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, water rights, oil, natural gas, potash mines, food commodities, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

I trust this article provides a little more insight into the convergence of the developed world and the emerging markets. With the gap between these markets disappearing on many dimensions and with the companies in these regions growing faster, it is wise to have exposure to these markets or at least to invest in companies that have what these economies need.

I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.

As a former engineer with General Dynamics and management consultant at Deloitte … I am on a mission to empower individuals by increasing their financial literacy, improve their ability for personal sustainability, and contribute to the program that has a goal of creating 100 Millionaires by 2012.

Until next time, I invite you to:

Meet me at Facebook :

Follow me on Twitter :

Read my Posts :

Watch my Video Channel :

Join me in pursuing financial literacy and alternative business opportunities with multiple income streams at aspenIbiz.

When not traveling for business or pleasure, Mike operates his own Internet Marketing company and consulting firm from his home in the mountains of Colorado.

In closing, if you are a reluctant entrepreneur, a business owner, employed in an 8-5 job, or recently retired, yet still wanting to be plugged-in to the next wave of economic prosperity, you can join me in pursuing the lifestyle you want to live by following the aspenIbiz link provided above.

Friday, February 19, 2010

Is Greece in 2010 Equal to Austria in 1931?

The economic climate in Europe today has worrying parallels with the 1930s, suggests Mike Farrell with aspenIbiz.

It is worth remembering that upheavals in Europe triggered the economic malaise that made the Great Depression “Great”.

Although 1929 is etched into history as being synonymous with the Great Depression, the real tragedy did not get underway until 1931.

The Austrian bank Boden-Kredit-Anstalt was rendered insolvent in the aftermath of the credit boom of the late 1920s. It was “saved” in October 1929 by merging with the stronger Oesterreichische-Credit-Anstalt. An international syndicate, headed by the Rothschild's of Vienna, that included J.P Morgan and Company, injected new capital into the merged entity.

The Austrian Government guaranteed the bad debts of the old bank and the merged entity spent 1930 “muddling through”. But then in May 1931, the Credit-Anstalt bank collapsed. Some blamed the political climate at the time, with the economic union between Germany and Austria (Zollverein) spooking France. Others simply stated that Austria had “consumed its capital” with the result that a banking collapse was inevitable.

Whatever the reason, the collapse of Credit-Anstalt triggered a run on German banks by French and US creditors, leading to the forced closure of the German banking system. London financiers were heavily exposed to German banks, and industry, and were caught out by the banking sector shutdown, which effectively froze their assets.

This in turn caused panic amongst London's foreign creditors and a run on the currency. The pound sterling was overvalued causing England’s major export industries to be uncompetitive. Unions were heavily represented in these industries and refused a proposal to cut wages. Unemployment was high and structure of the whole economy was inefficient.

England had two choices – austerity or devaluation. England chose devaluation because the politics of austerity were too hard.

In the 1930's, contagion went from the periphery to the core in very quick time. Austria folded in May 1931. By September of that year, Britain had gone off the gold standard and devalued the pound sterling.

And so went the contagion that crippled the world economically and provided the impetus for Hitler's rise and decades of economic and political turmoil.

The situation in the global economy today is eerily similar.

Greece, a peripheral European economy, is close to defaulting on its debts.

Being part of the Eurozone and using the Euro, Greece does not have the option to devalue its currency.

And, any default would lead to contagion, as creditors pull funds from other highly indebted countries. The list of targets is well known; Spain, Portugal, Ireland, Italy & England.

As England found in the early 1930s, Greece may find the politics of the EU austerity plan, necessary to prevent default on its debts, to be too hard.

The only other choice left would be to leave the EU and return to the Drachma, its previous currency, so that it could devalue its debts.

If Greece were to return to the Drachma other countries would likely follow and return to their former currencies … and this would bring down the Euro experiment.

This would also usher in another sharp global slowdown as European banks would be pushed towards insolvency by the associated write-downs on sovereign debt.

I favor a quote from Steve Forbes … Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to alternative wealth creating strategies and this will be they key to resolving our financial crisis.

As an example of alternative wealth creating strategies … consider investments in energy assets that are inherently useful like oil rigs, hydropower, or methanol plants … perhaps precious metals, water rights, oil, natural gas, potash mines, or gold mines … things hard to build, difficult to replace, and costly to substitute … definitely not financial stocks, definitely not retail stocks, definitely not commercial property.

I trust this article provides a little more insight in to the Global Financial Crisis; the economics of the EU, the ECB, and the Euro; and the adverse consequences if you do not have sound money practices and solid public finances.

I will continue to introduce alternative wealth creating strategies to consider in future articles and updates at my blog over the next few weeks.

Wednesday, February 17, 2010

The Law of the Ladder ... explained by Mike Farrell aspenIbiz

While being first in the mind of your lead or customer should be your primary objective, the battle is not lost if you fail in this endeavor.

All products are not created equal so there is a hierarchy in the mind that customers use in making decisions.

For each category, there is a product ladder in the mind of the customer. On each rung is a brand name.

Take a look at the car rental category. Hertz got into the mind first and wound up on the top rung. Avis got in second and National got in third.

Your marketing strategy should depend on how soon you got in the mind of your customer and which rung you occupy on the ladder; of course the higher the better.

For many years Avis was on the 2nd rung of the ladder and advertised they had the finest in rent cars. Many renters wondered how Avis could have the finest rent car service and not be on the top rung of the ladder.

Avis then did what you have to do to make progress inside the mind of the customer. They acknowledged their position on the ladder and created a campaign where they said, “ … go with us! We try harder.” And, Avis then started making a lot of money.

Many marketing people have misread the Avis campaigns. They assume the company was successful because it tried harder and therefore had better service. But that wasn’t it at all. Avis was more successful because of how and where it positioned itself compared to Hertz on the ladder.

The mind is selective. Customers use the ladders in their mind in deciding which information to accept and which information to reject. In general, a mind accepts only new data that is consistent with the product ladder and where the brand is on the ladder … everything else is ignored.

As an Internet Marketing professional, you need to determine how many rungs there are on the product ladder in your lead’s mind and on which rung are you likely to be perceived.

It depends on whether the product you are offering is a product used every day (like beverages, toothpaste, or ceral, referred to as high-interest products) or purchased infrequently (like travel packages, furniture, or wealth management, referred to as low-interest products).

If your product is a high-interest product, there are many rungs on the product ladder. If your product is low-interest product, there are fewer rungs on the ladder. And, there is a relationship between market share and your position on the ladder in your customer’s mind. You tend to have twice the market share of the brand below you and half the market share of the brand above you.

Sometimes your own ladder or category is too small. It might be better to be a small fish in a big pond than to be a big fish in a small pond. In other words it is sometimes better to be No 3 on a big ladder than No 1 on a small ladder.

Let’s look at how 7-Up used this law to its advantage by being a smaller fish in a bigger pond.

On the lemon-lime soda ladder, 7-Up was on the top rung and Sprite was on the 2nd rung. However, in the beverage industry, the cola market is larger and therefore the ladder had more rungs. So 7-Up positioned itself in the mind of its customers with a marketing campaign called “The Uncola” and climbed the cola ladder and increased its sales.

Before you start any marketing program, you need to determine if your product is a high-interest or low-interest product; whether there are many or few rungs; and on which rung of the product ladder are you likely to be positioned in the mind of the customer. You then make sure your campaign deals realistically with your position on the ladder.

Many Internet Marketing entrepreneurs are using techniques and tools like mind-mapping, keyword research, Attraction Marketing Formula, Magnetic Sponsoring, and MindMeister to conduct the market research and utilize the Law of the Ladder. They then use the power of brand You Inc, and hypnotic writing skills in their marketing campaigns, to deal realistically with the position of their brand on the product ladder in the mind of their leads and customers. The goals is to not emphasize why their offering is better, feature and function-wise, over a competitor’s but to develop a message that is recognized, accepted, and agreed to so that it will seduce and persuade a customer that what is offered will work for them.

Marketing is not a battle of products. It is all about the strategy you use depending on which rung your brand occupies on the product ladder.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

As a former engineer with General Dynamics and management consultant at Deloitte … I am on a mission to empower individuals by increasing their financial literacy, improve their ability for personal sustainability, and contribute to the program that has a goal of creating 100 Millionaires by 2012.

Until next time, I invite you to:

Meet me at Facebook :

Follow me on Twitter :

Read my Posts :

Watch my Video Channel :

Join me in pursuing financial literacy and alternative business opportunities with multiple income streams at aspenIbiz.

When not traveling for business or pleasure, Mike operates his own Internet Marketing company and consulting firm from his home in the mountains of Colorado.

In closing, if you are a reluctant entrepreneur, a business owner, employed in an 8-5 job, or recently retired, yet still wanting to be plugged-in to the next wave of economic prosperity, you can join me in pursuing the lifestyle you want to live by following the aspenIbiz link provided above.

Thursday, February 4, 2010

The Law of Exclusivity ... Ries & Trout, as explained by Mike Farrell with aspenIbiz

Two companies cannot own the same word in a prospect’s mind. When a competitor owns a word or a message in the prospect’s mind, it is futile and expensive to attempt to own the same word.

Mercedes Benz has tried to run marketing campaigns on safety but they have been unsuccessful in getting their safety message into the customer’s mind. You can’t change people’s minds once they are made up. If you try to change their mind, what you often do is reinforce the competitor’s position by making its concept more important. Volvo owns the word, safety.

FedEx owned the word “overnight” and wanted to try for worldwide ... but DHL already owns worldwide ... it is DHL Express Worldwide. Plus, DHL is thought of as faster to more parts of the world. So FedEx is using, “We understand. You want to grow internationally. And we do it fast.”

Another example is Eveready with the Energizer bunny. Eveready will periodically try to take the “long-lasting” concept away from Duracell. This continues to be very difficult to do, expensive, and with little effective results. No matter how many bunnies Eveready throws into the fray, Duracell will hang onto the “long-lasting” name because it got into the mind first and preempted the “long-lasting” concept ... “long-lasting” is even reinforced in the marketplace by the Dura part in the Duracell company name.

Many Digital Entrepreneurs are using techniques and tools like mind-mapping, keyword research, Attraction Marketing Formula, Magnetic Sponsoring, and MindMeister to identify words and messages that position themselves and their products exclusively as a solution to solve the needs of their leads or customers and not spend large amounts of marketing money that will benefit the competition. They then use hypnotic writing skills to persuade a customer to take the action they want and not emphasize why their offering is better, feature and function-wise, over a competitor’s offering.

Marketing is not a battle of products. It is a battle of focus for a single word or concept in the mind of the lead or customer and to ensure it is exclusive and not already owned by a competitor.

You can find out more about Internet Marketing and home-based businesses by reading updates that will be posted at my blog over the next few weeks.

As a former engineer with General Dynamics and management consultant at Deloitte ... I am on a mission to empower individuals by increasing their financial literacy, improve their ability for personal sustainability, and contribute to the program that has a goal of creating 100 Millionaires by 2012.

Until next time, I invite you to:

Meet me at Facebook :

Follow me on Twitter :

Read my Posts :

Watch my Video Channel :

Join me in pursuing financial literacy and alternative business opportunities with multiple income streams at aspenIbiz.

When not traveling for business or pleasure, Mike operates his own Internet Marketing company and consulting firm from his home in the mountains of Colorado.

In closing, if you are a reluctant entrepreneur, a business owner, employed in an 8-5 job, or recently retired, yet still wanting to be plugged-in to the next wave of economic prosperity, you can join me in pursuing the lifestyle you want to live by following the aspenIbiz link provided above.