The US Economy: Lessons from NASCAR

Apparently the government isn’t the only group subject to “alternative facts.”

Some web sites selling tickets hype the popularity of NASCAR. However, do you see the irony in this excerpt from the Ticket City website?

In the world of auto racing, NASCAR ranks as one of the sport’s most popular form. The $3.1 billion organization has been filling speedways to capacity for decades and the NASCAR following is only getting stronger. With an average NASCAR ticket price ringing in at $107 for the 2017 season, the sport has made attending races a reasonable feat in comparison to its racing counter parts like Formula 1, and the 2017 season is one of the most affordable in recent years..

The most iconic of all the NASCAR races, the Daytona 500, or the Super Bowl of NASCAR as it has become known, carries NASCAR’s highest priced ticket, but it may not be as pricey as you would think. In 2017, the Daytona 500 average ticket price settled in at $137 a pop. While the Daytona International Speedway currently holds nearly 101,000, following renovations to the track which reduced the number of available seats. (1)

Yep, the sport is so popular that we’re reducing the number of seats available.

USA Today has a different take:

Think NASCAR’s falling attendance and last season’s low TV ratings have lessened the cost of race tickets this season? Think again. (2)

Even with the reduced seating at Daytona, the track failed to sell all the seats this year. Bristol had sold out 55 consecutive races until 2016. Further, there are third party websites that are advertising 75% discounts on ticket prices. (4)

The bottom line is disposable income. Some US households have money left after spending on necessities; many don’t. Ultimately, the government owns the issues that are draining consumer wallets: health insurance and care costs, education cost and the burden of student loans, home financing. Until consumers are provided some relief, these issues will continue to strangle economic growth.

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Sources:

1. https://www.ticketcity.com/auto-racing/nascar.html
2. http://ftw.usatoday.com/2017/02/daytona-500-daytona-international-speedway-monster-energy-nascar-cup-series-ticket-prices
3. https://www.usatoday.com/story/sports/nascar/2016/07/01/nascar-declining-attendance-tv-ratings-fans-social-media/86573130/
4. http://www.goodseattickets.com/NASCAR?gclid=CLr4xIi98tMCFYaPswodUSkHzg

What do numbers mean?

If you think about it, anyone who can count can collect numbers.  The key is whether the numbers mean anything, and if so, what?

That  was the problem with the last US election, and it may be a problem with the French election in Sunday. We’ll see.

However, let’s talk about a more amusing example.

A new journal article claims that restricting the access of pharmaceutical sales people to doctors results in a 1.67% decrease in scripts for brand name drugs. The article claims that freebies like coffee mugs can cause doctors to feel in some sense obligated to write scripts for brand name drugs rather than cheaper generic drugs.

More likely, having something on a shelf showing the drug name may remind the doc about that drug when writing a script. Either way, the effect is the same.

The article goes on to assert that limits should be imposed on these salespeople to help reduce drug cost and excessive prescription of medication.

That’s one way to look at the data. There’s another.

If I’m a drug company executive, and I’m spending a mint on a network of pharmaceutical reps and their area managers, and all I have to show for it is a 1.67% lift in sales . . . . WTF? That’s not a winner for a resume.

Of course, there are exceptions. If a drug is remarkably expensive, then the tiny increase in sales could justify the expense.  But for most drugs, that’s not true.

Another question — why aren’t sales reps more effective? Perhaps they only really contribute in the early stage of introduction of a new drug to the market?

To a large extent, pharma companies have depended on government regulation for profitability. Does that make them less attentive to management basics? Any you want to buy their stock for what reason?

That’s the fun in numbers. Read them, and then think about other ways to look at them.

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Sources:

1. Diana Swift, “Restricting Pharma Reps’ Access Cuts Brand-Name Prescribing,” Journal of the American Medical Association. Published online May 2, 2017. http://www.medscape.com/viewarticle/879395?src=wnl_mdplsnews_170505_mscpedit_wir&uac=153634BV&impID=1342087&faf=1#vp_2

Dissing the Customer

Some things are so obvious, you wonder what business executives are thinking. If they are.

A business of any size exists for its customers. Without the revenue from their purchases, there is  no business. Companies can leverage laws to force customers to buy from them, but even that effect is limited. A cable company may have a virtual monopoly is a specific service area, but it can’t force customers to pony up for optional services such as pay-per-view. And most customers don’t. Tick people off and they find ways of getting back at you.

In fairness, companies face a tug-of-war between profits and costs, and most executives see customer service as a cost. For that reason, they

• Replace people with automated voice response or call direction systems — which consumers hate with a passion.
• Reduce staffing at call centers. (“Your call is important to us. Please hold for the next available agent.  Your wait time will be approximately 45 minutes.”)
• Replace experienced field service personnel with lower pay, semi-trained and less dedicated contract employees. (As an employer, you get what your pay for.)

As a researcher, one of my very first projects was for a Midwestern utility that had raised customer management to an art form. Literally. Customers who called with billing problems or service outages were happier with the utility than those that had no reason to call.

That’s because the utility understood what customers really want:

• Prompt attention, and
• Keeping people informed on the status of actions being taken on their behalf.

Consumers are realistic; they don’t expect perfection. That just doesn’t happen where humans are concerned. How you handle problems when they occur makes all the difference.

Smart managers learn that some shortcuts just aren’t.  If you lose customers, or if you increase the number of service calls to solve a problem, then the shortcut you took doesn’t save you anything. In fact it may increase your costs substantially.

Thus it was with amusement that I read the list of US companies with the poorest ratings for customer service.  The list includes almost every cable and wireless provider.  The cable companies are shaded; Sprint, T-Mobile and AT&T are on this list, and Verizon is very close to inclusion.

Other notable companies are

• K-Mart (financially struggling)
• Bank of America
• Wal-Mart

There’s no great surprise about who is here.

The chicken-and-the-egg question: Does cost cutting inevitably cause poor customer service? Or does poor customer service inevitably create the need for cost cutting? And where are companies using the resources that should be put int0 rebuilding relationships with customers?

 

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Sources:

1. Evan Comen, Samuel Stebbins and Thomas C. Frohlich, “The Customer Service Hall of Shame,” 24/7WallSt., 23 August 2016. http://247wallst.com/special-report/2016/08/23/customer-service-hall-of-shame-4/7/

 

The Employee Benefits Divide

There are immense divisions in US society:

• Rich versus poor
• More educated versus less
• Old versus young (ageism lives)
• Urban versus rural (fading since most people live in urban areas, but still very real)
• Ethnic and racial

We can add big employer versus small business to the list.

Large employers are adding benefits for employees that small businesses simply can’t afford.

American Express announced an increase in paid parental leave to five months with added surrogacy and IVF benefits, and Ernst & Young expanded parental leave from three to four months for parents of all genders and added adoption, fertility and surrogacy benefits.

Basically, if you have fertility issues, it really pays to work for one of these large financial services firms.

The larger division is a shift in focus in large companies from the cost of benefits to the total well-being of the employee. That shift has benefits for these companies in terms of worker retention and productivity.

Small companies pay a price for their focus on cost in terms of employee turnover, learning curves for new employees that affect productivity, and errors that affect customer relationships. However, they simply can’t afford some of the benefits that large companies can offer. Nor do they get the favorable pricing for benefits that insurers give to their largest clients.

The size divide isn’t clean. There are small companies that recognize how important their employees are.  I know of one diner (a class of eatery for which New Jersey is famous) that offers a good benefits package to staff, but that’s unusual in food service establishments.

Conversely, large retailers tend to treat employees as replaceable. In one recent study by the ACSI, retailers closing stores were seeing improvements in customer satisfaction ratings. My guess is the stores that were  under-performing had the lowest individual store ratings for customer satisfaction, but the ASCI data aren’t sufficient to address that.  Why not? Minimum wage employees with limited benefits and no career path aren’t motivated to deliver for customers. People do what they are incented to do.

What you need to consider:

• Students need to think about the kind of company for which they will work in the future.  College is less optional if benefits matter.
• Small businessmen need to get creative about ways they can invest in employees. The old mentality that “having a job is sufficient motivation” is simply a way to guarantee mediocre staff. Good people can always find another job. When there is turnover, the best are the first ones out the door.

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Sources:

1. Ann Clark, “Top 5 best work benefit trends for 2017,” BenefitsPro, 6 March 2017. http://www.benefitspro.com/2017/03/06/top-5-best-work-benefit-trends-for-2017?kw=Top+5+best+work+benefit+trends+for+2017&et=editorial&bu=BenefitsPRO&cn=20170312&src=EMC-Email_editorial&pt=Benefits+Weekend+PRO&t=employee-paid&page=2
2. American Customer Satisfaction Institute, “ACSI: Retailers Improve Customer Satisfaction Amid Store Closings,” 28 February 2017. http://www.theacsi.org/news-and-resources/press-releases/press-2016/press-release-retail-2016

 

Internet Insecurity Revisited

Your applications encrypt your data.  You’re protected, right?

Wrong.

There are three things you need to know about the latest round of papers made public by Wikileaks:

• The CIA (in some cases in partnership with UK’s MI5) developed ways to hack device operating systems. The devices include all types of computers and cell phones, networked TVs, car onboard systems — basically everything anyone uses that’s connected to the Internet. The operating systems affected are Windows, Android and Apple.
• The hack allows the user to read data as it is entered (typed or oral), before it is encrypted.  Everything.
• The hack allows users to control devices and use them for spying on device owners.
• The CIA may have LOST CONTROL of these hacks, meaning that they are out in the public domain where others can use them.

The CIA might not care about you, but are there others who might want your bank account?

The revelations have shocked experts.

Still, the amount of smartphone vulnerabilities and exploits detailed in these documents was shocking even to experts. “It certainly seems that in the CIA toolkit there were more zero-day exploits” – an exploitable vulnerability in software not known to the manufacturer – “than we’d estimated,” Jason Healey, a director at the Atlantic Council think tank, told Wired Magazine. He added: “If the CIA has this many, we would expect the NSA to have several times more.”(3)

Early reports are that the documents published by Wikileaks appear authentic.  None of the companies involved have commented on the situation. Nor do there appear to be any patches immediately in the offing.  After all, none of the players is yet admitting that they have something to patch.

Some writers see a bright side in these revelations: the decision to hack operating systems means that data encryption tools work.  That may or may not be true.  We don’t know what is still to be revealed.

Security problems aren’t under control or going away.

“Anybody who thinks that the Manning and Snowden problems were one-offs is just dead wrong,’’ said Joel Brenner, former head of U.S. counterintelligence at the office of the Director of National Intelligence. “Ben Franklin said three people can keep a secret if two of them are dead. If secrets are shared on systems in which thousands of people have access to them, that may really not be a secret anymore. This problem is not going away, and it’s a condition of our existence.’’(4)

I’ve said that nothing on the Internet is private, but this takes that statement to an entirely new level.  Nothing you type or speak into an Internet connected device is private. 

Ben Franklin was indeed a very wise man.

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Sources:

1. Sharon Profis and Sean Hollister, “WikiLeaks and how the CIA sees your WhatsApp messages, explained,” CNet, 7 March 2017. https://www.cnet.com/how-to/wikileaks-cia-hack-phone-tv-router-vault-7-year-zero-weeping-angel/?ftag=CAD3c77551&bhid=25995825932822145966367556179766
2. Jose Pagliery, “Wikileaks claims to reveal how CIA hacks TVs and phones all over the world,” CNN Tech, 7 March 2017. http://money.cnn.com/2017/03/07/technology/wikileaks-cia-hacking/
3. Trevor Timm, “WikiLeaks says the CIA can use your TV to spy on you. But there’s good news,” The Guardian, 7 March 2017. https://www.theguardian.com/commentisfree/2017/mar/07/wikileaks-says-the-cia-can-use-your-tv-to-spy-on-you-but-theres-good-news
4. Devlin Barrett, “FBI prepares for new hunt for WikiLeaks’ source,” The Washington Post, 7 March 2017.

Merchant of Death

The US spends more on weapons than do other developed countries that are not actually at war.

In the US, 3.3% of GDP (2015) goes to military spending. In Russia (still considered a “developing country” economically, it’s 5%; in China, it’s 2%. In the EU, it’s 2.8%.

The big spenders on weapons are the Arab states, led by the Saudis. The Saudis spend approximately 14% of annual GDP on weapons, the highest percentage in the world.

The US also sells more weapons to other countries than does anyone else.

Out of 197 countries, 12 of the largest 25 weapons manufacturers are based in the US. Here’s the top 10 (2015 data, as not all companies have closed their 2016 fiscal year):

1. Lockheed Martin (US) $40 billion
2. Boeing (US) $29 billion
3. BAE Systems (UK) $25 billion
4. Raytheon (US) $22 billion
5. General Dynamics (US) $19 billion
6. Northrop Grumman (US) $18 billion
7. Airbus (The Netherlands) $15 billion
8. United Technologies (US) $13 billion
9. Finmeccanica (Italy) $11 billion
10. L-3 Communications (US) $10 billion (1)

In addition to domestic purchases, the US is a major provider of weapons to other countries (2). The major buyers are

1. Saudi Arabia, $1.9 billion from US out of $3 billion in total arms imports
2. Iraq, $893 million in purchases from the US (51.5% of total arms imports)
3. Australia, $869 million from US (82% of total arms imports)
4. United Arab Emirates, $773 million from US (61%)
5. Qatar, $595 million from US (66%)
6. Israel, $526 million from US (87%)
7. Italy, $511 million from US (59%)
8. South Korea, $501 million (37%)
9. Japan, $307 million (93%)
10. Mexico, $280 million (72%)

Oddly, current foreign policy in the Middle East and towards Mexico could put much of this weapons revenue at risk. In World War II, the US was “the arsenal of democracy.” That’s no longer the case since most of the major buyers are monarchies.

 

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Sources:

1. http://ceoworld.biz/2016/02/17/the-top-25-largest-defense-companies-in-the-world-2015
2. http://247wallst.com/special-report/2017/02/24/countries-buying-the-most-weapons-from-the-us-government/2/
3. “Military Expenditure,” http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS

 

Best and Worst States for Business

24/7 Wall Street has published a lengthy article assessing the business climate in the %) US states.  It’s a fairly comprehensive analysis, looking at 50 different criteria, including taxes, labor force characteristics, infrastructure, etc.

The bottom five states are fairly predictable.  The top five aren’t, including political polar opposites.

Best five states for business:

1. Utah
2. Massachusetts
3. Idaho
4. Colorado
5. North Dakota

Utah, Massachusetts and Colorado benefit in particular from a  highly educated labor force.  That’s important for the technology sector that’s likely to drive economic growth in the future.  Idaho and North Dakota are pro-business in the sense of having weak unions and low wages.

Massachusetts is the one state in the Northeast that isn’t losing population.

Five worst states for business, starting from the bottom:

1. Louisiana
2. Mississippi
3. West Virginia
4. Maine
5. Pennsylvania

The bottom states share a common lack of an educated work force.  Fewer than 1/4 of workers in Louisiana and Mississippi have bachelors degrees, and the percent employed in science and technology is in the very low single digits.  West Virginia and Maine share these problems, just to less of an extreme.  The local economies suffer from high poverty rates.  Given the trend to robotize unskilled labor positions, the future in these states is scary.  All five states are losing population.

Pennsylvania represents a special case of self-inflicted problems.  The state has a poorly maintained highway infrastructure which is a drag on business growth.  Pennsylvania really is bipolar.  There are highly educated nuclei in Philadelphia, Pittsburgh and State College, and then there’s everywhere else.  It’s the modern version of Lincoln’s “house divided against itself”.

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Sources:

• http://247wallst.com/special-report/2017/02/14/the-best-and-worst-states-for-business-3/
• Census Bureau