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You’re the Boss Blog: Trying to Take the Sting Out of a Price Increase

June 5, 2013 by Leave a Comment
She Owns It

Portraits of women entrepreneurs.

Susan Parker, owner of Bari Jay.Suzanne DeChillo/The New York Times Susan Parker, owner of Bari Jay.

At the last She Owns It Business Group meeting, the owners talked about several pricing issues. Susan Parker, who owns Bari Jay, recently discovered that customers react not only to a price increase but also to the way it is presented. When she learned her factories were raising her prices, she thought she would pass along a 10-percent-per-dress increase to all of customers. But then she had another idea.

Bari Jay customers who paid their invoices within 30 days had been receiving an 8 percent discount. Rather than increasing dress prices for all customers, Ms. Parker decided to discontinue the discount. This seemed like a good idea because it would affect fewer accounts, and the timely payers would still end up paying less than they would if she increased prices 10 percent across the board. But when customers learned they would be losing their discount for prompt payment, they were angry and confused, Ms. Parker said.

“I could see that,” said the group member Alexandra Mayzler, who owns Thinking Caps Group. “I’d feel like I’d been being so good, paying early, and you’re taking that opportunity away from me.”

With hindsight, Ms. Parker realized where Bari Jay went wrong. When she and her sister sent letters to the discount recipients, they said simply that Bari Jay was eliminating the 8 percent discount. The news might have been better received had they stressed that the discontinuation was in lieu of a 10 percent increase. “We only gave them the negative without giving them the positive, so the perception was that we’re taking something away,” she said.

“I think understanding that these things are going to happen, and building contingencies into your contracts — if you have a contract-type business — helps,” said Jessica Johnson, owner of Johnson Security Bureau.

Shifting gears, Ms. Parker said Bari Jay’s biggest pricing challenges are in Europe and Australia. While the company sells directly to stores in the United States, it sells through distributors in Europe and Australia, and the relationships with those distributors were in place before Ms. Parker and her sister took over the company. 

Recently, Ms. Parker’s Australian distributor claimed it could increase Bari Jay’s business if it received a bigger discount. Ms. Parker said she was glad to offer one given the promise of more sales. But Bari Jay found that the change resulted in a decline in revenue. “The distributor must have made more money but it came from our pockets, not from increased sales,” she said.

Ms. Parker had agreed to offer the bigger discount for a trial period that ended about six months ago. But because Bari Jay didn’t speak up when the trial ended, Ms. Parker said she and her sister now feel stuck with the discount.

“Did they know it was a trial period?” asked Deirdre Lord, who owns the Megawatt Hour.

“They did,” Ms. Parker replied. Sometimes, she added, she wonders whether she and her sister are “suckers.” She said they walked into a meeting with the distributor saying, “We’re going back to our original discount.” But they found neither of them had the nerve to push for the result they wanted.

“Are you afraid that they’re going to stop carrying your line?” Ms. Lord asked.

Ms. Parker doesn’t think that would happen — it doesn’t cost the distributor all that much to keep the line. But she said she has learned from her experiences with stores in the United States that they seem to promote the lines of their favorites. So, she said, she is wary of becoming “the person they don’t love dealing with.” Already, Ms. Parker suspects her Australian distributor isn’t promoting Bari Jay as much as it does other lines. For example, she said the distributor advertises other lines in all four issues of Australia’s leading bridal magazine but only advertises Bari Jay in two issues.

Ms. Lord said it sounds like Bari Jay may have a marketing issue, not a pricing one. That is, it’s not Bari Jay’s prices that are affecting sales, but the way in which the distributor is marketing the company’s dresses.

In Europe, Bari Jay’s distributor claims he needs a bigger discount to improve sales, which have fallen significantly. Ms. Parker is considering offering a discount that incorporates a minimum order. But she’s not sure. “If I do this and it doesn’t work, well then how do you renege?” she asked.

Why wouldn’t Ms. Parker just conclude that Europe isn’t her market? Ms. Mayzler asked. “You don’t want to have a price that’s not actually working,” she said.

But Ms. Parker stressed that Bari Jay has been successful there. At their peak, she said European annual sales were about $500,000, or one-fourteenth of Bari Jay’s revenue — with minimal labor costs. The dresses ship directly from Asia, at the distributor’s expense, so Bari Jay isn’t responsible for packing and unpacking. She said her labor is basically limited to order entry and invoicing. “So, it’s mostly profit,” she said. But now, European sales are close to zero — not profitable at any cost.

“What happened?” Ms. Mayzler asked.

“Europe keeps saying the market changed,” Ms. Parker said. She acknowledged that the region’s economic woes aren’t helping. But she suspects other issues are at play. She recently learned the distributor buys all of his other lines directly from factories, not retailers like Bari Jay, which mark up the factory’s price. “I can’t compete when he’s getting direct from a factory and I’m a middle man,” Ms. Parker said. “He’s selling my dresses next to a dress for half the price.”

Ms. Mayzler suggested that the problem is the distributor, not the discount amount. Ms. Parker acknowledged she is searching for a new European distributor. But until she finds one, she said she would like to see at least some European business. A bigger discount may offer her current distributor an incentive.

“Dare I say it’s not worth being in Europe?” Ms. Lord asked.

“It is though, because I can do half a million dollars, why wouldn’t I want that?” Ms. Parker replied.

“It depends how much it costs you,” Ms. Mayzler said.

You can follow Adriana Gardella on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/06/05/trying-to-take-the-sting-out-of-a-price-increase/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Common Sense: History Suggests Stocks May Have Farther to Go

April 5, 2013 by Leave a Comment

With both the Dow Jones industrial average and the Standard Poor’s 500-stock index hitting new highs this week, and the S. P. 500 having already gained 10 percent in the first quarter, a growing chorus of analysts and financial advisers are warning investors that it is too late to join the rally.

Their logic seems unassailable: if ideally the goal of investing is to buy low and sell high, stock investors would indisputably be buying high right now. That the market would continue at anywhere near its first-quarter pace — an annualized return of 40 percent — stretches credulity. And by historical norms, this bull market, which began in March 2009, is aging.

Of course, this is what experts almost always say when stocks rise to new highs. So I wondered, what would have happened to investors who bought stocks in the past only after stock indexes hit new highs?

To find out, I used the S. P. 500 index, and looked for those points where the index hit a new high at least one year after its previous high. (These points should not be confused with market peaks, which can be identified only in hindsight.) I used a one-year intervening decline because new highs get attention only when a substantial period of time has elapsed since the previous one.

By my count, there have been eight such new highs since the S. P. assumed its current form in 1957. I also looked at the high reached by the S. P.’s predecessor in 1954.

If investors had ignored the adage that the easy money had already been made and bought an index fund at those points, then held the investment for five and 10 years, how would they have fared?

In all but one instance — if investors had bought in October 2007 — they would have realized positive returns, not adjusted for inflation. Even in that case, when the S. P. 500 surpassed the previous high set in 2000, the five-year loss was modest. Of course, it is too soon to know what the 10-year result will be, but with the market’s recent new highs, the index has recouped all its losses.

In several cases over those years, the gains were spectacular, ranging from over 100 percent to 200 percent and more. The best returns would have been realized by investors who bought in mid-1989, when the S. P. 500 surpassed the high previously set in October 1987, before the crash that year. By 1999, investors had nearly quadrupled their money in one of the market’s greatest bull runs.

(Of course, they were headed for a crash in 2000. Even though the market reached a peak that year, by my definition there was no new milestone high because the index had not traded below its October 1987 high for a year or more.)

It seems that buying high — or at least at new highs — may not be such a bad strategy after all.

Several experts I consulted this week suggested the result may not be as surprising as it seems.

Richard Sylla, a professor of the history of financial institutions and markets at New York University, pointed out that anyone who bought stocks early in the great bull markets beginning in the mid-1950s and in 1982 experienced outsize returns, even if they bought at new market highs. By contrast, if they bought at new highs reached in mid-1967 or 1972, returns were tepid, even negative when adjusted for inflation.

“The long periods between new highs — 1929 to 1954, 1968 to 1982, and 2000 to 2007 — were periods marked by both bad economic policies and wars,” Professor Sylla said. “The periods of steady advance — 1954 to 1968 and 1982 to 2000 — featured better economic policies and minor wars. Right now, it seems to me that economic policies are improving, as is the economy as we put the financial crisis behind us, and we are getting out of wars instead of into them, knock on wood. That could indicate that we are in the early stages of a period that might resemble 1954 to 1968 or 1982 to 2000. So the recent new highs could well be a signal that it’s a good time to invest in equities.”

Jeremy J. Siegel, a finance professor at the Wharton School of the University of Pennsylvania and author of the classic “Stocks for the Long Run,” said he agreed that “the data doesn’t bear out that just because the market has hit a new all-time high, it’s too late to buy stocks.”

Article source: http://www.nytimes.com/2013/04/06/business/history-suggests-stocks-may-have-farther-to-go.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

You’re the Boss Blog: When Software Vendors Take Their Time

March 4, 2013 by Leave a Comment
She Owns It

Portraits of women entrepreneurs.

Susan Parker: Earl Wilson/The New York Times Susan Parker: “Too late.”

At the last meeting of the She Owns It business group, Susan Parker talked about the frustrating process of switching to new software to run her company, Bari Jay. After more than a year, the project, which was supposed to take three months, is still unfinished — although she hopes the new software will be live within a month. Although she likes the software, with hindsight she says that she would never work with this particular software development company again. But where does that leave her now?

The software company’s co-owner, she said, is “the most laid-back person” — although, she added, “he wasn’t laid back in the sales process.” The co-owner, who is based in the Philadelphia area, meets with Bari Jay at its offices one day every month or two. When he’s there, Ms. Parker said, she observes no sense of urgency. For example, he once took a 30-minute cigarette break before addressing a glitch she had called to his attention. “If he worked for me, he’d be fired by now, but I can’t do anything,” she said.

Beth Shaw, who owns YogaFit, asked whether Ms. Parker thinks the software company co-owner even understands his own system, given that he seemed more focused on sales.

“He knows his system inside and out,” Ms. Parker replied, “and I think he even knows my system pretty well.”

The group considered what, if anything, Ms. Parker could do to address the problem at this late stage.

“Some software implementations have sort of staggered payments, so you don’t make the last payment until it’s live,” said Deirdre Lord, who owns the Megawatt Hour.

“We did that with our Web site,” said Ms. Shaw, who talked about her site in previous posts.

“Too late,” Ms. Parker said. She paid in three installments during the three-month time period that the project was supposed to last. “Then, all of the sudden I was like, maybe I shouldn’t have paid them,” she said.

“Exactly,” Ms. Shaw said.

On the plus side, Ms. Parker said, the software company knows that the monthly payments she began making in November won’t continue indefinitely unless the software goes live — soon. “They’re also hoping to go after more bridesmaid and bridal companies,” she added.

“Referrals,” Ms. Lord said.

“If it’s working for my company, there are like five other companies on my same old software,” she said. The software firm would only have to make minimal modifications going forward if it took on those projects.

“The conventional wisdom is every technology project takes two or three times as long, but yours blows that,” Ms. Lord said. “I’ve heard a lot of people tell the same story with different technologies.”

Ms. Parker said she’s learned a lot from the process but doesn’t plan on switching software again for a very long time — if ever. She said it’s become “embarrassing” to give the same status report every time she attends one of her Entrepreneurs Organization meetings. Yet no one there can think of what she might do differently.

Although she stays on top of the software company, she said she must ultimately rely on them to do what they say they’re going to do.

Any suggestions? How has your business dealt with “laid back” technology vendors?

You can follow Adriana Gardella on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/03/04/when-software-vendors-take-their-time/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Your Money: Four Signs That It’s Time to Find a New Broker

February 1, 2013 by Leave a Comment

And so it is with the tale of Philip David Horn, the Wells Fargo broker who recently pleaded guilty to trading in clients’ accounts, canceling the trades and helping himself to the profits. He may very well end up in jail, just as soon as the federal judge can figure out how much money is at stake and how to make those clients whole.

All the juicy stuff is here, as my colleagues Jessica Silver-Greenberg and Susanne Craig laid out in a front-page article last month. There are the country club solicitations (and confrontations), the brokerage firm that finally figured out what was going on after more than two years and the chastened Mr. Horn putting 800 hours into volunteer work and begging the judge to keep him out of prison.

But on the other side of those trades were sophisticated clients, including a lawyer and retired pharmaceutical and aerospace executives. They didn’t notice what was going on, something that Wells Fargo’s lawyer pointed out four times in just a few minutes at a hearing last month in Los Angeles.

So should Mr. Horn’s clients have seen this coming? Perhaps not. But could they have? In hindsight, there were four signs that things weren’t quite right.

BROKER BRAGGING Mr. Horn reportedly bragged on the golf course about his trades and then pulled paper records out of the trunk of his car in the country club parking lot to back up his boasts.

This is objectively odd behavior. Pitches should take place in an office or at a meeting spot of a potential client’s choosing, over a sober deck of PowerPoint slides perhaps.

And if financial advisers are going toot their own horns about the good they’ve done for others, you should be hearing about how they persuaded clients not to sell all of their stocks in the first quarter of 2009 when stocks were at their nadir, even though they desperately wanted to. Or you should be hearing that the adviser regularly informs clients of perfectly legal tax-saving maneuvers that they never even knew about. And you should be looking for an emotionally intelligent counselor who can negotiate a truce between you and your spouse over spending disputes.

If brokers want to brag about past performance, however, ask them this: Can you show me audited, long-term results across every part of all of your clients’ portfolios? And can you guarantee that your good calls were related to skill and not luck?

BROKER TRADING The couple who suffered the most losses had multiple accounts with Mr. Horn, and their monthly statements, in aggregate, often ran more than 300 pages. Mr. Horn hid his in-and-out trading among all that verbiage.

Like it or not, if you’re putting your money in somebody else’s hands, you have the responsibility to read every line of your statements every month. People like Mr. Horn, who was a friend to many of his clients until he wasn’t, count on the fact that you won’t.

“I think the victims were picked because they weren’t paying attention to their accounts, because each and every trade was documented,” said Stephen Young, Wells Fargo’s outside counsel in this case, according to a court transcript of a sentencing hearing in January.

Then, if there is a lot of trading going on. you have the right to ask why. In a 1999 paper in the American Economic Review titled “Do Investors Trade Too Much?” Terrance Odean, now a professor the Haas School of Business at the University of California, Berkeley, answered in the affirmative.

His 1999 research, which examined a group of discount brokerage customers, found that on average the things investors buy actually underperform the things they held in the first place. Their returns are reduced through trading.

In a 2009 paper that Mr. Odean wrote with three others, the group tried to figure out exactly how much individual investors lose by trading. Using data from Taiwanese investors, they determined that the answer was a whopping 3.8 percentage point penalty annually on overall portfolio performance. In an e-mail this week, Mr. Odean said that he believed that these conclusions could be extended to brokers trading actively for their clients, though he has never studied this explicitly.

Article source: http://www.nytimes.com/2013/02/02/your-money/four-signs-that-its-time-to-find-a-new-broker.html?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

Bucks Blog: Carl Richards: More Lessons From His Short Sale

November 22, 2011 by Leave a Comment

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog. His new book, “The Behavior Gap,” will be out in January.

One of the most powerful outcomes of writing about your experience is that you learn things you didn’t know before you started.

The process of sharing one of the more intense experiences of my life, the short-sale of my home, was terrifying. In hindsight, I’m glad I did it because of what I learned. Here are a few of those lessons and answers to some of the questions that readers raised:

I told myself stories: As David Brooks recently pointed out, “people are really good at self-deception,” and I’m no exception. Real people are notoriously good at gathering information, data and “facts” to support the conclusion we want to hear. Often we even call that research.

We are even better at ignoring information that we don’t want to hear. Have you ever noticed how you avoid the scale when you’ve been eating garbage and seek it out when you are eating well? I have wondered if I rationalized my behavior, and the answer is, of course I did. I made mistakes and then looked for a way to make sense of them.

Short sales: A short sale is a negotiated settlement between a borrower and a lender. I worked closely with the bank to explain my situation. The bank reviewed it very carefully, and in the end, we worked something out that both parties felt was better than the other available options.

My wife and I found a buyer for the house at a price the bank agreed to accept. It accepted a loss on the risk it took, and we accepted the consequences on our side of the deal. We lost our home and trashed our credit. Both parties agreed to the deal, but neither party escaped without consequence.

Obligation to society: While I don’t have a debt to the bank, I do feel like I have an obligation to society. This is one part of the experience that I still really struggle with. I know that my decisions had an impact on society as a whole. My individual impact was small, but just like everyone tossing a small piece of trash, it adds up. I’m not sure how I will fulfill that obligation, but I’m pretty sure that it’s part of my life’s work.

That obligation is also a large part of why I do what I do for a living. We have to change the way we deal with money if we’re going to avoid repeating the same mistakes over and over. I have recently found myself really interested in learning from others who have both succeeded and failed because it’s incredible what you can learn from people who have already been there. Maybe, just maybe, sharing my story can help someone avoid the same mistakes.

Security versus securities: One of the things in my story that got the strongest response was how I got into the financial world by applying for what I thought was a security job.

I recently had a meeting with a senior executive at a large research company who told me that he remembered applying for a job after college. It was a window sales job. He thought he would be selling Microsoft Windows software. It turns out it was actually the kind of windows you look through.

I guess I should have included the fact that it started as a part-time job when I was still a full-time college student. I also delivered flowers and worked at Subway. But what followed were years of some of the best training in the industry, a degree in finance and one of the more rigorous industry designations there is.

The point I was trying to make was that life is a journey, and most of the time the path we thought we were on will take a twist, often for the better.

Why I told the story: There’s no good way to address the claim that I wrote the story to sell books. It reminded me of the press conference after Lance Armstrong won his first Tour de France. He was asked how he would respond to people who claimed that his chemotherapy was performance enhancing. As I recall, he said something like, “Let them try it!”

There would be far better ways to sell books than to take your family through three years of hell and then, just as things were starting to feel normal, share it with the whole world.

I decided to tell the story after people I knew asked me for over a year to tell it. These were people who genuinely felt that it needed to be told because it might help others make sense of their situation. Based on the overwhelming number of gracious e-mails I’ve received from people sharing their stories, I think telling my own was the right thing to do.

Getting a second opinion: As my friend Tim Maurer, also a financial planner, says, “Personal finance is more personal than it is finance.”

Because it’s so personal, it’s very hard to stay objective. We are just too close to it to think clearly. Doctors routinely avoid operating on or treating family members and really close friends. After all, that emotional connection could very easily cloud their judgment should something go wrong and require a critical decision during a stressful situation.

When you think about what money represents, it’s easy to see that it’s emotionally charged. Money is about more than spreadsheets. It’s about our most cherished dreams and often our greatest fears. With those stakes on the line, why is it so hard for us to recognize that we shouldn’t be “operating” on ourselves?

Unless you wake up in the morning and see Warren Buffett in the mirror, chances are you need help. Finding someone to act as a sounding board, an objective third party, is worth the effort.

Now I realize that as soon as I say that we have another issue – who? The traditional financial services industry has a well-earned reputation of being untrustworthy. It’s still really hard to determine who is a real financial adviser or even what they do that makes them worth the cost.

But it’s crucial to try. We can seek out a trusted friend, parent, C.P.A. or our lawyer. Our family hired a real financial planner and after working with him for just a few months, I’m convinced we would have avoided many of our mistakes had we hired him five years ago. Just having a rule that before making major decisions you will walk some objective third party through your thinking would be a step in the right direction.

Co-pilot: Getting advice is different from abdicating responsibility. In the end, after all the advice in the world, there is only one person that can make the best financial decision for you. It’s you.

I like to think of this objective third party as playing the role of an experienced co-pilot. This person is there to point things out and to make sure you have thought of alternatives, but ultimately the decision and responsibility is yours. So while I take full responsibility for my decisions, it does help to know that my family now has a trusted third party to help us, hopefully, avoid bad decisions in the future.

Moving forward: No matter what we do, the reality is we all make mistakes. When we make these mistakes, it seems like we should face the consequences, glean the lesson and then move on. We all have a choice. We can wallow in self-pity, blame others and complain, or we can move forward. I’m not sure what role talking about it plays in moving on, but I do know that hiding from the past never seems to help.

One of the things I did learn from my experience is that until you walk in someone else’s shoes it’s impossible to understand what they’re going through and the motives for their actions. I have found myself a bit kinder, a little slower to judge and maybe even looking for ways to give others the benefit of the doubt.

I had zero expectations that sharing my story would change anyone’s mind about what I did. I did hope that it would help people struggling under the crushing weight of financial mistakes. I also had a teeny, tiny hope that those people who vehemently disagree with me would maybe see the other side of the story and understand.

Not agree, just understand.

Article source: http://feeds.nytimes.com/click.phdo?i=3661c980ce946529fcdd2759794a540b

Filed Under: Your Money Tagged With: , ,

Bits Blog: Google Reaches Settlement on Illegal Ads

August 24, 2011 by Leave a Comment

12:48 p.m. | Updated to include official announcement.

The government announced Wednesday that Google will pay $500 million to settle government charges that it has shown illegal ads for online Canadian pharmacies in the United States.

The fine, which the Justice Department said is one of the largest such penalties ever, covers revenue that Google earned from the illegal advertisers and revenue that the Canadian pharmacies received from United States customers.

As part of the settlement, Google acknowledged that it improperly aided the Canadian pharmacies — which operate illegally by failing to require a prescription or selling counterfeit drugs — in advertising through its AdWords program.

Since 2010, after Google became aware of the investigation, it has required that all Canadian online pharmacy advertisers be certified by the Canadian International Pharmacy Association and has specified that they can advertise only to Canadian customers. United States pharmacy advertisers must be certified by the National Association of Boards of Pharmacy.

The investigation was first revealed in May, when Google said in a government filing that it set aside $500 million for the potential settlement of a Department of Justice investigation into its advertising practices. The move decreased its quarterly profit by 22 percent.

Google has said in the past that regulating these pharmacies on its site is a cat-and-mouse game, because when it introduces rules to prevent them from advertising, they find new ways to appear on Google.

Web sites are liable for ads on their sites from advertisers that break federal criminal law.

“We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago,” Google said in a statement Wednesday. “However, it’s obvious with hindsight that we shouldn’t have allowed these ads on Google in the first place. Given the extensive coverage this settlement has already received, we won’t be commenting further.”

In a statement issued by the Justice Department, James M. Cole, a deputy attorney general, said: “The Department of Justice will continue to hold accountable companies who in their bid for profits violate federal law and put at risk the health and safety of American consumers. This settlement ensures that Google will reform its improper advertising practices with regard to these pharmacies.”

The investigation was led by officials from the United States attorney’s office for the District of Rhode Island and the Food and Drug Administration’s Office of Criminal Investigations.

Article source: http://feeds.nytimes.com/click.phdo?i=b37ac02753711bf603a388b8c4b483c5

Filed Under: Business News Tagged With: , ,