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Advertising Bias

I just read this article about the pros and cons of individualistic advertising versus demographic/profile advertising on the internet. I thought it was going to be about the ways in which companies use data gathered, and how intrusive they are. It was, kind of, but it had a lot of economics (price discrimination, etc) and though someone might be interested. The article can be found here.

Sony’s Advertising Drive

Sony has launched a new 20 million dollar advertising campaign. The campaign emphasizes the easy-to-use, high-tech features of Sony’s camcorders and digital cameras. Sony’s new campaign comes in the wake of a series of ad agency changes. They hope that their new campaign will “show the public that Sony is making the same kind of technological advances in high-definition as, say, Apple is making in music.”

Sony’s new devotion to advertising is a response to the competition they have experienced from companies such as Samsung. According to David Martin, United States president of Interbrand in New York, says Sony has dropped from 18th in 2000 to 26th in his company’s annual brand rankings. To remedy this recent drop, Sony plans to play up its new technology and use humorous ads to make the brand feel more accessible. Sony is confident about this new campaign will be successful because their consumer research showed that consumers had great passion for Sony but that the brand was not making an emotional connection. Mr. Martin, however, is less sure of its success. He contends that traditional advertising has become less effective in the consumer electronics sector because people are paying more attention to objective product reviews. It seems that Sony’s advertising will only be effective if their products meet the new expectations they are setting.

http://www.nytimes.com/2007/04/10/business/media/10adco.html?_r=1&ref=media&oref=slogin

Advertising gone too far?

Corporations have long been searching out new places to post advertisements. It started with television, radio, billboards and publications but today ads are everywhere. The average consumer faces 5,000 ads per day! Many economists believe this competitive "pushing" of ads has led to huge advertising waste. The consumer has been desensitized to many forms of advertisements, forcing advertising execs to change their tactics.

This extreme competition for consumer attention may have forced corporations to go a bit too far with advertisements. CBS has begun stamping advertisements for it's TV shows on eggs sold in supermarkets. This is crazyness. Or maybe not. We'll have to see the effects of this new bold egg-stamping advertisement campaign.

One thing is for sure, getting the product name to the public is extremely important. With advertisements being placed everywhere for the sake of brand-name recognition maybe stamping eggs isn't such a bad idea. See video below.



There are several advertising experts that believe CBS's eggstamping will turn consumers against them, believing that consumers will view the advertisement as an invasion of personal privacy. The idea is to penetrate the monotonous buzz of advertisements competing to reach the consumer in a place when they may least expect it and in a place where they are not sifting through an onslaught of information. If consumers take liking to the idea I believe it will be very beneficial to CBS. We will just have to see.

Posted by Patrick Giesecke, Jonathan Sutton and Melissa Barry

Ridiculously long-lasting gum!

Chocolate is the number one treat to give to trick-or-treaters. Gum is the third most popular Halloween treat according to National Confection Association. Sugarless gum sales grew 9.9%. NCA’s Susan Fussell proclaims “It’s a shining star right now”. On Halloween, the Cadbury Adams marketer handed out nearly 100 boxes of their new Stride gum, a sugarless gum Cadbury flaunts as having “ridiculously long-lasting flavor”.
Drew, executive Vice president in marketing explains that the number one complaint of gum chewers is that the flavor just doesn’t last long enough..”Stride was born out of that fact”. Stride is promoted with dry witty commercials by JWT, New York. Cleverly, the ads began on June 21 –the longest day of the year. The ads’ setting is basically in a workplace that looks like the set of the NBC comedy The Office. Drew admits “Rather than just saying our gum lasts longer, we almost created a sitcom!” We think that Stride producers used key elements to produce a successful advertising model; they aren’t too bold or too passive.
Younger consumers agree, according to results of Ad track, USA TODAY”s weekly poll. 22% of 18-24 year olds give the ads top ratings. Stride has built a 2.4% market share and helped increase Cadbury’s overall share to 31.6%, up three points. A contest on their website, www.stridegum.com, even invites everyone to come up with their own marketing to boost sales. They have the essential flavors like new sweet peppermint, winterblue, and spearmint. However, they do need to find more clever ways to promote their gum to fight competition like Orbit’s mint mojito flavored gum.

AIr Jordan: It's Gotta Be the Shoes!

With a price tag nearing 200 dollars a pair, a Jordan to any teenage basketball fan is analogous to a Jimmy Choo or a Manolo Blahnik to a crazed woman. While there have been numerous shoes throughout the last 15-20 years that have been sponsored by particular athletes, Michael Jordan’s shoe is the only one that has stood the test of time.

Building value has been a critical factor in this peculiar phenomenon. The Air Jordan shoe line’s success and popularity were highly correlated with Michael Jordan’s personal on-court successes. Even years after Jordan’s retirement, NBA stars continue to wear Brand Jordan sneakers as they were so heavily influenced during their adolescence. Hoops fanatics are left thinking, “These shoes are worn by millionaire professional athletes, they must be the best out there!”

However, a factor more important that building value may be the advertising of Jordan commercials. From a recent article on the effectiveness of advertisements, it’s been shown that it is far more important to consider how people feel about a brand, than what ads can tell them about it. It’s critical to define a target audience, ensure people have empathy and emotional attachment, etc. Jordan commercials do just that. The commercials always feature inspiring quotes or basketball clips - tugging at the heartstrings of basketball fans, and generally promote how wearing a Jordan sneaker is not only about performance but also about status. The Jordan commercials have effectively transformed Brand Jordan into a status symbol amongst the urban hip hop community.

As people camp outside Foot Lockers the night before the release of a new Jordan sneaker, as parents shell out almost 200 dollars for a pair of shoes for their children, as Jordan sneakers have the Midas touch, the question of how a sneaker has become such a popular icon can only be answered by the statement: ITS GOTTA BE THE…advertising?

Posted by Chris Liu, Seon Hwang, Kristy Choi, Minsoo Park

Holla at yo Context, What?

While advertising practices have changed in drastic ways in our modern history, no other market has experienced such rapid saturation and exposure than that of internet advertising. Since this “internet” thing became a big deal, the shear number of users world wide has had advertisers foaming at the mouth as they realized that low cost advertising was possible(as opposed to higher cost methods like newspaper ads, billboards or mailing solicitation) and that segmenting consumers into specific groups would be much easier to accomplish. While most traditional advertising is targeted at the general population, which is not desirable for advertisers, the ability to separate consumers into different preference groups allows for much more effective advertising. Take Nike shoes for example. While in the prehistoric days of the internet, an advertiser might put up a billboard in the side of road with the newest Nike basketball shoe. While some potential consumers may be affected by this ad, it is unlikely that my 90-year-old grandma will want to go buy the new kicks. Warping forward to the days of the internet, Nike could pay to have an ad of their new shoe appear whenever someone searched basketball equipment, sporting news or shoes on a search engine. It’s ah nice.

With internet advertising gaining momentum, one must look at the difference in advertising strategies. Pop-up ads serve as the scum of the industry as almost all users try to avoid them. Contextual advertising, however, serves as an efficient way to match consumers with producers based on the consumers’ interests. This strategy is currently being used by many internet companies as advertisements are selected and served by automated systems (i.e. within google or yahoo) based on the content displayed by the internet user. The future of internet advertising is unclear, but for now, contextual advertising seems to be a great fit for consumers and producers. I’m no economist, but I would have to say that this advertising increases social welfare as producers can be more appropriately matched with consumers, giving way to higher utility and less wasteful advertising. Thumbs up to you contextual advertising.

It's So Easy, Even ABC Could Do It

In March, ABC confirmed suspicions that the characters from Geico’s popular Caveman Ads would be featured in a pilot for a prime time comedy spot on ABC. The move, which marks a modern blurring between advertising and entertainment, seems primarily a marketing response to technology that allows viewers to skip their TV ads, as well as a desperate attempt for ABC to produce a successful sitcom.

The history of ad to TV characters is mixed. CBS’ 2002 attempt to create a “Baby Bob” show after the successful ads for a successful Internet failed. But The California Raisins, who originated from ads for the California Raisin Advisory Board, became a 1980s pop-culture hit and had a cartoon series on CBS.

According to the Wall Street Journal, a major explanation for the widespread popularity of the ads is Geico’s large advertising budget – it evidently spent about $403m on ad time and space in 2005. The ads are clearly more in the “building value” than “extending reach” category – they mainly serve to increase name recognition of Geico through the “Geico: so easy a caveman could do it” slogan, as well as to associate the company with the somewhat cerebral comedy and irony of the caveman as urbane sophisticate.

Geico’s caveman characters and lexicon are now ingrained in popular culture. WSJ reports, “fans at college sporting events have been known to hold up signs that say ‘Beating (team name) is so easy, even a caveman can do it.’” A line from one of the original ads, where the cavemen are taken to dinner by ad executives to apologize for the offensive ad, is now widely recognizable - “I’ll have the roast duck, with the mango salsa.”

-Katie, Helen, JungIn, Pam

Chivas Regal Gets a Makeover:

Chivas Regal, the high-end Scotch whisky had many years of success since its inception in 1801, but began declining during the 80’s and 90’s until a Frenchman by the name of Christian Porta acquired the brand in 2000 from Seagram for 2 billion (pounds).

During the 1960’s and 1970’s, Chivas Regal had such a powerful presence in the market that people would ask for a “Chivas on the rocks”, instead of a “Scotch on the rocks.” But after these decades, Chivas’ image started to falter and lost market share to its main competitor Johnnie Walker Black Label, owned by Diageo. In 2003, Mr. Porta made small, subtle changes to the packaging and went into an aggressive 45 million (Euro) advertising campaign in which Chivas used its new catch line, "This is the Chivas Life". These commercials featured scenarios such as: traveling without a destination in mind, sailing a yacht and ice-fishing in Alaska. The new commercials and catch line were obviously trying to target younger consumers with this more “extreme” kind of message to it, whilst trying to maintain its older customer base: "The objective of it is to attract younger people, rejuvenate the brand and increase Chivas's approachability” says Porta.

In 2003, Chivas Regal’s sales increased by 7%. Although this number isn’t significantly large, it is a great improvement over the 1% - 3% sales drop per year that began during the mid-1990s. “The early signs show that with the new campaign and the new packaging we have reversed its decline". The image decay and then subsequent sales slump, seemed to come from neglect by Seagram, probably due to the fact that they must focus on many products and not just Chivas. What this brand needed was exactly what it got, a single non-corporative owner, with new ideas that could meticulously buff-up Chivas’ image and give it new life.

Adam, Amy, Braden and Fabio

Battle of the Beer Brands

Comparative advertising, where brands selling nearly homogenous products compare their product to that of another company, is increasingly used as a tool to gain market power within the industry. In 2005, Miller Lite, launched adverts attacking Bud Light, a brand produced by the Anheuser-Busch Brewing Company. Over the Memorial Day holiday the year before, Miller suffered as a result of price cuts undertaken by Anheuser Busch and Molson Coors.

In an attempt to revive itself, Miller executed an advertising campaign, titled “The Truth Hurts,” which directly attacked Bud Light, urging drinkers to switch to Miller Lite, claiming that it has more taste. Because beer is considered an “experience good,” quality is not perceived until one actually tries the beer. However, consumers are likely to be more responsive to advertising for these experience goods, because it provides an inexpensive way to learn about the good. Because the elasticity with the respect to advertising is likely to be high for beer, a large advertising expenditure undertaken by Miller is worthwhile. With the increased advertising effort, Miller gained 0.1 percent market share during the Memorial Day period compared with the year before, despite increased prices. It is likely that Miller gained market power, which concurred with its increase in advertising. Thus, in industries with a high responsiveness of sales to advertising will have high advertising intensity and inevitably high market power.

http://milwaukee.bizjournals.com/milwaukee/stories/2005/06/13/daily34.html

http://query.nytimes.com/gst/fullpage.html?res=940DE2DA153AF931A1575AC0A96E948260

Posted by Jessica Halper, Michael Ledwith, Jake Carter-Lovejoy and Drew Muir

XM + Sirius = Xirius?

By HoosAdvantage: Kara Ivy Goldberg, Thomas K.M. Li, Wei (Grace) Song, , Cheung Fai Yeung

The potential future marriage of Sirius and XM would bring together the nation’s only two satellite radio services and this proposed horizontal merger has ignited heavy debate on either side of the issue. However, a union between the two competing firms must first gain approval from the Federal Communications Commission (FCC) as well as the Justice Department. Much attention will be devoted to whether or not the deal violates antitrust laws and the company’s pricing structure will be a big focus of the Justice Department’s review. Both companies currently compete in Cournot equilibrium, and charge their subscribers $12.95 a month. When discussing the future of their merger, neither party would comment directly on whether the combined company would seek to raise prices.

With approximately 6 million subscribers, Sirius is most well known for being the home of shock jock Howard Stern, Martha Stewart, and National Football League games. By the end of last year, the larger XM service closed their books with about 7.6 million subscribers and it airs the popular Opie and Anthony show, Oprah Winfrey, Bob Dylan, and Major League Baseball Games.

Sirius Satellite Radio CEO Mel Karmazin and the XM chairman, Gary Parsons, presented analysts with one of their main arguments to support the merger. They argued that along with satellite radio, all forms of mobile entertainment - including digital music players like Apple’s iPod and music-playing cell phones - will comprise the true market that the future merged company will face.

Given the strong antitrust concerns, many analysts are doubtful that the deal will be approved by the Justice Department. FCC chairman, Kevin Martin, has expressed his strong support of the current FCC rules that prohibit a union between the two companies. In an interview, one antitrust lawyer called the chances of regulatory approval a ‘long shot.’ Furthermore, numerous sources in Washington have hinted that the chances of gaining approval for the deal by the first quarter of 2008 are less than 50 %.

The future of satellite radio is becoming the focus of much concern and the stakes are high. A horizontal merger between Sirius and XM runs the risk of hurting consumers with the possibility of a significant price increase for future subscribers. However, the battle to merge will be tough insomuch as terrestrial radio will fight to block it, Kevin Martin will fight to block it, digital music players will fight to block it. And logic should block it.

Source: http://money.cnn.com/2007/02/20/news/companies/xmsirius_reaction/index.htm?postversion=2007022010

Consolidation or Liquidation?

Since deregulation in the 1970's, the airline industry has seen a shift towards a more competitive structure. The rise of low cost airlines such as AirTran, JetBlue, and Southwest has exacerbated downward pressure on prices and expanded access to many primary and secondary routes. This process has continued unabated to this day; see, for instance, the recent entry of AirTran and JetBlue into the Richmond, VA market at Richmond International Airport (RIC), a fact heavily advertised as part of their "Fly 8" campaign.

When combined with rising costs due to, among other things, increased fuel prices and high labor costs as well as reduced demand after September 11, it is not difficult to see the problems facing the traditional airline powers. Indeed, these problems resulted in $42 billion in losses for the industry over the past 5 years. This has led several carriers, including United and Delta, to declare bankruptcy in a final attempt to restructure themselves in this new environment.

Besides bankruptcy, another strategy that many in the industry are attempting to utilize in order to reduce competitive pressures and increase market power (and, consequently, prices) is mergers and acquisitions. In recent months, US Airways has made a bid for Delta while United has done likewise for Continental. Consolidation has become the main avenue through which airlines are attempting to regain profitability, given that the large losses facing most major carriers suggests an industry with unneeded supply.

Of course, increased prices for air transportation would not be beneficial to travelers, leading to much public debate about the merits of the proposed mergers. Antitrust regulators will be concerned about an excessive consolidation among the largest airlines, fearing the shift towards a more inefficient oligopic market structure with less service to many routes and high prices for said routes. Labor unions, already reeling from prior concessions to their beleaguered employers, will be reluctant to grant even more bargaining power to these post-merger companies.

In the end, the major airlines seem to be trapped in a perpetual cycle of discontent, plagued by a market environment devoid of profits and by a political environment less than conducive to what maybe the most direct way of handling the crisis; as such, the outlook is certainly bleak with respect to the potential for profitability in the airline industry any time in the near future.

Submitted by Caryl Huynh, Chris Coyle, Lance Wang, and Meghan Magennis

Xbox 360 Welcomes PS3 to the Next-Generation

On March 23, the much talked-about Sony Playstation 3 hits shelves in Europe (and Australia). The well-publicized production delays caused Sony to initially limit the PS3 release to the US and Japan, forcing European gamers to wait until production scaled up to allow acceptable release unit availability. Already a year behind Microsoft's XBox 360 console in the US, the PS3 has an even greater gap to contend with in Europe now. Add that to the raised cost of the European PS3 (compared to its lower-priced US counterpart - apparently Sony is willing to subsidize European gamers quite as much), and Sony has quite an obstacle to overcome to catch up to Microsoft. Enter EU launch night, a hallowed event for gamers (and techies in general) everywhere, when prospective purchasers will camp outside of stores, waiting for the clock to strike midnight, to become one of the first to own the dazzling new system. Video game console companies use this as a way to drum up excitement, sometimes offering additional incentives to launch night buyers or throwing parties at select mega-stores. Following this vein (and possibly also in an effort to appease the jilted European gamers who were forced to wait extra long for their PS3), Sony threw such events at large stores in London, Paris, and other large cities. Some were given free 46" plasma HDTV's and a cab ride home (to prevent console-related violence), and others were treated to a retail "party" aboard a boat moored near the Eiffel tour (serving as a temporary electronics store). Obviously, Sony expected such perks and their resulting press coverage (read: free advertising) to help bolster PS3 sales, but what they didn't expect was a little competition at their own launch.



It might not surprise some that Microsoft, the Stalin of technology competitiveness, did not sit by idly and let Sony steal the spotlight. In a console launch season that has seen plenty of advertising controversy, from Sony's super creepy floating baby commercial to Nintendo's almost complete lack of advertising, it seems that nothing was off-limits, even sabotage. In an attempt to sway gamers and cash in on some free advertising of its own, Microsoft funded various pranks around some of Sony's higher profile events. In response to Sony's floating gala in Paris, Microsoft hired a boat and painted it with Xbox themes, including a large message in almost international wording: "XBOX 360 [HEART] YOU." This boat drove up and down the Seine River, circling Sony's boat to the accompaniment of overpowering whistles from the deck and nearby rooftops, drowning out Sony's own PR messaging. Microsoft also sent text messages to journalists across France, wishing them a good evening (of waiting around for nothing, presumably), courtesy of XBox 360.



In London, gamers waited as long as 36 hours in the notoriously miserable and cold London weather for their consoles, but Microsoft had something to say about this as well. Microsoft "good samaritans" wandered the crowd passing out free chairs with www.shkyw.org printed on them. While the ardent PS3 fans initially greeted these chairs with enthusiasm, mobile internet users in the crowd soon discovered their true meaning: Shouldn't Have Kept You Waiting, courtesy of Xbox 360. The URL sent users to a splash page sarcastically welcoming late-comer PS3 to the next-generation.

More hijinks were held elsewhere, including Microsoft sending a premier English video game news site £146 worth of Foster's beer - the price difference between the Xbox and PS3 - with a note saying "What would you purchase for £146...? Signed, Xbox 360." Such guerilla marketing techniques, while humorous, are also interesting because of their nature of direct attacks on competitor's products. Citing higher costs and longer waits, Microsoft hoped to steal Sony's launch thunder and garner its own free publicity (a move that is highly-yet-understandably anticompetitive from Microsoft). Additionally, rarely does one see such targeted ads, reaching out directly to consumers who are in the process of buying a competitors product. Wouldn't it be strange if you reached for a tube of Crest toothpaste and representatives from Colgate suddenly showed up to try to get you to second guess your purchase (or if the adjacent Colgate tube itself somehow tried to communicate to you!)? This level of advertising prank is usually not pulled off by large corporations, rather being more commonly relegated to college fraternities or media conglomerates, but in the current age where companies pay dearly to get you to notice them, maybe this will become more common. Microsoft obviously thought it was worth the expense to pull off these pranks, just as Sony must have thought it was worthwhile to fund their launch events, spending an estimated £250,000 on the TV/cab ride promotion alone (or maybe they were stuck in a prisoner's dilemma, both spending vast sums of money* with no sway of sales levels either way). Given how large the multi-billion-dollar video game industry has become, and seeing how opulent all events gaming are becoming, it seems that such strongly competitive advertising is only going to become more commonplace.

*It should be noted that Sony is somewhat of a groundbreaker in the expensive and innovative advertising field, with such cool campaigns as paying graffiti artists to create large murals for its Playstation Portable device in public hot spots. It seems that the more money is at stake, the more companies are willing to spend to innovate and get their brand our there.

Source (one of many possible): http://www.inform.kz/showarticle.php?lang=eng&id=149589

--Risto, Cheryl, Joe

Possible Marriage of the Chocolate Giant & the Candy Man

On March 31, 2007, The Wall Street Journal reported on Hershey’s willingness to discuss a possible merger with its U.K competitor, the candy business of Cadbury Schweppes. Speculation of a future tie-up began shortly after Cadbury’s announcement that it plans to separate its candy and drink units, holding on to the candy side and more than likely selling its drink business to a private-equity firm. When questioned on the matter, LeRoy Zimmerman, chairman of Hershey Trust Co., told the newspaper that since “the board of the trust holds the majority voting rights” for the chocolate giant, it has a responsibility to listen to all potentially profitable future options.
Talk of a “Hershey-Cadbury candy combo” should not come as a surprise, considering that today’s “food makers are under increasing pressure to consolidate in order to boost their negotiating power with retailers.” Other likely beneficial reasons for a horizontal merger between these two complementary businesses involve cost reduction, a search for synergies in operation, and a more efficient pricing and/or improved service to customers. However, even though a joining of powers could be advantageous, there is a trade-off. Such a move would consolidate the marketplace position of the largest U.S. chocolate maker, Hershey, and the world’s largest confectionary unit, belonging to Cadbury, potentially producing something that could act like a legal cartel. Along the same detrimental lines, a merger could lead to plant closures and job losses due to the combination or movement of the two parties’ operations. (Fear of such events were actually the driving force behind the opposition from the Pennsylvania officials and community groups who forced Hershey to pull itself off the market just five years ago.)
Even though Zimmerman turned around and downplayed talk of a deal with Cadbury the very next day, he did discuss Hershey’s goals to cut costs, regain market share lost to archrival Mars Inc., and expand its global reach. Funny, these sound very similar to the goals that could possibly be accomplished by entering a horizontal merger with another powerhouse. In the end, even if the chocolate giant decides not to merge into marriage, it is speculated that the candy man will still pursue her!

http://money.cnn.com/2007/03/31/news/companies/hershey_cadbury/index.htm
http://money.cnn.com/2007/04/01/news/companies/hershey_nodeal.reut/index.htm

Bidding Wars Beyond the Scope of eBay

With news of a possible merger between British bank Barclays and Netherlands’ largest bank, ABN Amro Holding, a frantic and deeply expensive bidding war has started amongst some of the most prominent banks in Europe. In a statement made by ABN officials, there has been “exclusive preliminary discussion with Barclays concerning a potential combination of the two organizations.” This merger, which would make the combined bank worth more than $166 billion dollars, has resulted in analysts predicting that Citigroup, HSBC, and the Royal Bank of Scotland and Santander will be prepared to make counteroffers to ABN within the weeks to come.

The two banking companies, although operating in the same industry, have relatively limited overlap in terms of geographical location. ABN would give Barclays a retail credit card presence as well as their business of financing acquisitions; and more importantly, the company would spread its influence beyond that of Europe - expanding into the lesser invested Asian and African markets.

With the recent successes of similar bank mergers between Bank of America/Fleet/MBNA, rumors of a possible merge have resulted in significant increases in stock values for ABN. The merger would produce extensive cost savings in terms of competitive advertising and marketing, while at the same time promoting widespread familiarity with the company name throughout Europe and Asia and increased corporate profits. Analysts have stated that the acquisition of ABN would essentially be a plus for any large European bank, so it all boils down to who’s willing to dump out the big bucks. If only ABN had a Buy-It-Now option, all of this unnecessarily scrupulous “economic analysis” could be avoided!

-Seon Hwang, Kristy Choi, Minsoo Park, Chris Liu

Internet Advertising: Following Your Every Move

The pop-up blocker. This seemingly simple invention speaks volumes about the internet. Basically, you need a tool to prevent your browser from being bombarded with advertisements. So it shouldn't be too hard to see how firms view the internet: as a way to convince you to buy something.

Internet advertising is fast becoming a huge source of revenue for website owners. A total of $15.7 billion was spent on online ads last year. Companies everywhere see it as an easy way to target consumers of every possible category. And as software technology becomes increasingly advanced, so do these seemingly annoying but innocent online ads. Using high tech data-collection, tracking, and analysis methods, internet ad designers are able to track individual web users, the sites they view, and the things they buy online. Using this wealth of information and running it through computer models, firms are able to target consumers based on their behavior and design ads that are specific to each internet user, down to the smallest detail. Firms like Ogilvy specialize in marketing and advertising techniques that fine-tune internet ads to maximize their effectiveness. Anything including the color of the ads, their placement on different sites, and the time of day they are run can be tweaked so that it is specific to an individual.

Needless to say, firms are catching on. Yahoo, MSN, and AOL, among others, are jumping on the bandwagon of using “behavioral targeting” to target ads to consumers. But this brings up a number of issues. While tracking consumers on the web may be legal, is it moral? The internet giant, Google, has refrained from such tracking techniques because it doesn’t want to “snoop” on its users. According to Gokul Rajaram the director of Google AdSense, Google’s advertising division, “it’s murky in terms of privacy.” Another issue that arises with internet advertising is the promotion of false information. If firms can track consumer’s online behavior, they can use this information to target ads that will be effective regardless of their credibility. This kind of false advertising can lead to huge inefficiencies in the market.

While internet advertising techniques are surely effective, firms must be able to use them responsibly. As our society becomes more and more dependent on the web, internet advertising will no doubt take over as the dominant method for advertising information to consumers. We need to be sure that firms are being responsible in their advertising techniques, as well as truthful in the information that they are advertising.

~Chuck Thomas, Brian Rock, Lian Ye, Zoey Wang

The Drug-Induced Gray Area

Swiss pharmaceutical giant Roche Holding AG has been on a buying spree this week. On Monday, it announced the purchase of California biotech company Therapeutic Human Polyclonals. Today, Roche acquired BioVeris, a maker of biological and chemical diagnostic systems. Indeed, the pharmaceutical industry is no stranger to frequent merger activity, especially with growing healthcare trends.

But what about the merger paradox? These seem like typical horizontal mergers: Roche and BioVeris, for example, both compete in the immunochemistry business. Here, the challenge of merger profitability is mitigated by the product differentiation and enhancement promised by this acquisition. BioVeris will allow Roche to expand into new market segments beyond its human-diagnostics focus.

Moreover, pharmaceutical mergers (like much of the real world) don’t fall neatly into theoretical categories of horizontal or vertical mergers. With BioVeris, for example, Roche not only acquires new products but also intellectual property rights, vaccine research, and licensed technology. Many large pharmaceuticals will acquire small biotech companies to augment R&D – arguably the signs of a vertical merger.

The key issue for pharmaceuticals is the balance between organic growth and growth through acquisition, which is complicated by property rights governing the R&D that is uniquely critical to the industry. In its merger analysis, Roche undoubtedly sees shades of gray that are difficult to reconcile with clear-cut economic theory.

Holly, Pat, Daniel, Kevin

Smoking Gun

Monday was the first day in nearly two decades that Kraft Foods traded as an independent company. In 1988, tobacco giant Philip Morris, which has since changed its name to Altria, acquired the packaged foods and beverages manufacturer in a conglomerate merger. One likely explanation for the merger is that Philip Morris wished to reduce the risk inherent in the cigarette industry by acquiring a stable and well-regarded company. Industry risk is large and rising as anti-tobacco groups gain clout, further litigation and federal regulation loom in the future, and hundreds of thousands of consumers die from product usage each year.

This past Friday, Altria completed a spin-off of Kraft Foods by distributing its 88.9% stake in the company to its shareholders. Why is the spinoff taking place? Some would conjecture that Kraft’s association with Philip Morris is dragging down sales, as consumers boycott Kraft’s products due to its ties to cigarette money. The stock market, however, supplies a different answer.

Typically, a spin-off increases the value of the shares of the spun-off company, but in our case the opposite is true. After the announcement of the spinoff this January, Kraft shares have dropped 11% as Altria shareholders have bet against Kraft Foods. By the end of the trading day on Monday, the first trading day after the completion of the spin-off, Kraft Food stocks (KFT) fell $0.81, or 2.6%, to $30.85 while the shares Altria (MO) rose $2.32, or 3.5%, to $68.22.

It seems investors favor Altria to Kraft. Even though it is plagued by charges of unethical behavior, deadly products, and threats of increased regulation and litigation, the cigarette industry’s strongly inelastic demand curve guarantees market stability and industry power.

It remains to be seen how Kraft and Altria’s share prices will respond to the merger in the long run. Perhaps the spin-off signals an end to the merger-happy 1990s. We will have to stay tuned to the situation to find out.

-Pam, Jung In, Helen, and Katie

Industry's First Integrated CPU/GPU Silicon Solutions

What is a good strategy when you are in a two-firm oligopoly market and your share is much smaller than that of the competitor’s? Being that it would be very difficult (legally) to merge with the only other competitor (as we see with XM and Sirius), you can merge with a similar firm to increase economies of scale, innovation, and profits. This is exactly what AMD did on October 24^th 2006. The transaction involved a $5.4 billion purchase of ATI in what can be considered a Horizontal Merger. ATI basically shares the high-end GPU (graphics processing unit) market with NVIDIA, its main competitor. Even though ATI and AMD produce different products, they will benefit from decreasing costs in R&D, materials, and overall PPE (property, plant and equipment).

The main reason this merger was accepted is because Intel holds a much larger share of the CPU (central processing unit) market than AMD; they had sales in 2006 of $31.5 billion and $7.5 billion respectively. AMD wants to create a physical integration called “Fusion” between its CPU and newly acquired GPU unit’s. This is a large technological step in the computing world, because it will be the first integrated CPU/GPU system in the market. The merger is healthy for competition because it will create an incentive for Intel to come up with a similar technology and then a subsequent price war between the two which benefits consumers, “AMD believes that these integrated platform innovations will bring customers improved system stability, better time-to-market, increased performance and energy-efficiency and overall, an enhanced user experience.”

In sum, this merger will help advance computing technology which leads to more R&D, and thus, more competitiveness in the market; not to mention (probable) higher profits for the AMD/ATI combo.

Adam, Amy, Braden and Fabio.

How ‘Bout Dem Apples

While traditional advertising expenditures continue to increase every year to extremely high levels, innovators are taking advertising in a whole different direction with the use of product placement. With the increase in technology and the growth of television in the past thirty years, more and more people are being exposed to vast amounts of media coverage every day. The television industry, in particular, has emerged as a top means for advertising. Through media avenues such as TV shows and movies, companies are modifying their image, by means of persuasive view advertising, in an effort to increase the consumers’ utility in purchasing the product. Sounds complicated, but in essence, all the company is doing is developing a cool factor for their products that consumers pick up on whether they like it or not.

While instances where companies pay high prices and set up contracts with TV and production companies to have their products placed in media(i.e. Norelco 8894XL in the James Bond film, Pepsi in Austin Powers Goldmember), some companies are getting loads of exposure at no cost. Apple computers products were mentioned over 250 times on television in one studied four month period. On the hit TV show “The Office”, Apple racked up more than four minutes of free exposure to audiences. Other shows such as CBS's "CSI: NY," Fox's "24" and NBC's "Las Vegas," also prominently displayed products throughout their showing times. In older episodes of 24, it can be noticed the high occurrence of bad guys using PC and Windows and the good guys using apple products…go get ‘em Bauer.

With this advertising market gaining popularity, one would think that Apple and other companies would devote more resources to obtaining more product placement at low or no costs. We imagine that this free advertising won’t last long and that a structured market will result in the future. But for now, it seems the Apple is the victor of the free advertising game.

Tsk Tsk, Sony

This article discusses how the European Union has charged and accused several companies of running a cartel to fix the price on professional video tapes. These companies include Sony Corporation, Panasonic, Hitachi Maxell, and TDK Corporation, which are well known for their VHS production and sales in the United States. The video tapes involved in the cartel are made specifically for special video equipment and are used almost exclusively by TV stations, independent TV producers, and advertising film producers.

The EU stated that the evidence of the cartel was based on information received under a leniency program. This is obviously the best way for a cartel to be detected, by providing immunity to anyone who comes forward and reveals the collusion.

The video tape corporations have two months to prepare their response and then argue their case. In order for the EU to prove that the cartel exists, they will need statistical accounting data that demonstrates the monopoly profits and the corporations’ lower costs by working together. This industry makes sense for a possible cartel since the companies probably have similar production costs, with a specialized product that is standard for professional video equipment. There is a lack of significant product differentiation, which simplifies negotiation and makes it easier for firms to agree on prices.


Posted by Marie Copoulos, Tiffany Luong, and Vicky Ukritnukun

The "Googling" of Satellite TV

Today, Google announced that it will start using its advertising technology on EchoStar's Dish Network. The deal with the Dish Network will enable Google to take a piece of the $70 billion television advertising market. Google's revolutionary advertising technology enables the advertiser to either choose a network and time of day to advertise or allow the Google system to target specific demographic and geographic categories through its advanced software. Google's system is especially useful to advertisers because it is able to relay information about the number of ad viewers, time spent watching the ad, and other parameters. Thus, Google's entrance into the traditional television market is certainly noteworthy.

Google is an internet advertising behemoth, with a 65% revenue growth rate from 2005 to 2006 and profits in the billions. Its unique moneymaker is the auction system it uses to price its ads. The bidding process, coupled with Google's majority share of the search engine market, drive ad prices up to high levels on a constantly adjusted basis. As mentioned, its advanced software and targeting makes these prices worthwhile for advertisers.

Google's entrance in the television market foreshadows its ambitions to move into other more traditional media than the internet. Its entrance could change the face of advertising and TV marketing. The Nielsen ratings could languish as advertisers are able to get much more detailed, real information that could be crucial for a company's ad campaign. The improved targeting that is provided with Google's system has the potential to increase demand and marginal revenue curves, while keeping average total cost somewhere similar to previous levels. The targeting likely also reduces consumer search costs. If Google's TV service is effective and successful, it is possible, and perhaps likely, that it will find dominance in the TV market just as it has on the internet.

posted by Josh Bennett, Jeff Kerestes, and Charlotte Pool

Toyota has Camry, Honda has Accord, Ford has Focus… What does General Motors have again???

General Motors itself is not a brand name for a car and yet, it is one of the largest auto manufacturers in the world. How did this come to pass? The Deal Maker expands how William C. Durant built GM in the early 1900s through both horizontal and vertical mergers, often associated with individuals whose names remain as their legacy, such as Ransom Olds (Oldsmobile), David Dunbar Buick, Louie Chevrolet, and Albert Champion (Champion spark plugs). Thus, Durant kept the different models of the merged companies to appeal to different markets. Such product differentiation became the key to GM’s success, especially in the mid 1920s.

The irony is that Durant never successfully integrated the firm to achieve cost savings. He bought up competitors simply to gain a dominant market share and thus realize high profits through pricing closer to monopoly price than competitive price. This lack of efficiency allowed their main competitor, Ford, to move ahead.

Ford Motor Company, under Henry Ford, emerged and stayed independent at this time, dominating the market from around 1917-1926. Ford’s Model T, basically its only model, was sold at a much lower price than any of GMs’ cars due to low costs yet relatively high quality.

Thus, Ford’s price competition initially dominated the market but its complacency with a single successful model ultimately hurt it as the automobile market grew at such a rapid pace and consumer tastes shifted towards more varied models such as GM offered. This was eventually remedied as Ford is now the home to several brand names such as Lincoln, Mercury, and Jaguar, some of which were acquired through horizontal mergers. As most know, both GM and Ford have been surpassed by Toyota in the recent past, partially due to another change in consumer preferences towards high fuel efficiency. Who knows what kind of product differentiation will next take the lead in this dynamic industry…

Found this post interesting? Then take HIUS 341 US Business History!

By Jim Baltz, Wooi Yang Chang, and Brian Gavron

Connected to Everyone... For FREE!

For the past few years there have been tons of telecommunications mergers.U.S. antitrust authorities let AT&T and BellSouth to move forward with their $67 billion merger. For the past few years Thomas Barnett, assistant attorney general in charge of the antitrust division claims that the “proposed transaction is not likely to reduce competition substantially” and states that the “merger would likely result in cost savings and other efficiencies that should benefit consumers”.
AT&T Chairman and CEO Edward Whitacre explains the merger will “benefit customers through new services and expanded service capabilities”. Their focus is providing great service and innovative, competitively priced products for consumers and businesses throughout the nation and world. They also claim that the merger gives military and national security agencies a reliable U.S. based provider of secure, high-quality services.
Critics obviously opposed the merger saying it will reduce competition, limit customer choice and eventually lead to price increases. AT&T will have way to much power that the company might abuse by disregarding customer privacy barriers and limiting the type of traffic that crosses its networks. These risks are there because the merger would create the largest phone company in the US. Andrew Schwartzman, CEO of nonprofit law firm Media Access Project, says “AT&T, with the help of a complicit government, is poised to control nearly half of the nation’s phone lines and will also be the largest wireless and broadband Internet company in the country. If consumers thought gas prices were out of control, wait until they get their next phone bill!”