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World Series Scalping

10/29/2016

1 Comment

 
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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence
You’ve probably heard there’s a World Series going on.  Although, any edition of the Fall Classic is special, this one is truly epic, not because of the teams’ storied histories but because of their longstanding futility.  The Cleveland Indians have not won a World Series since 1948.  The Chicago Cubs’ languishing has been even longer, a painful 108 years without a title, which means some unprecedented marketing opportunities from this year’s matchup.
 
Besides these two teams’ woes, baseball has experienced struggles of its own.  Some report declining TV viewership, due in large part to a decreasing interest in baseball among young people.  Still, when it comes time for the World Series, engagement explodes, especially for diehard fans of franchises like the Cubs and Indians who have waited so long for success.  Those teams and their surrogates, then, start to experience the opposite problem: how to satisfy fans’ overwhelming desire to partake in history.

That participation, of course, comes at a cost.  Tickets for championship contests are always high, but those for this year’s Series are particularly pricey.  At Chicago’s Wrigley field, “Face value for tickets ranges from $450 for infield club boxes to $175 for upper-deck seats.”  Those list prices may seem expensive, but they’re nothing compared to what people are paying for tickets in the secondary market. 

For this past Friday’s game at Wrigley, its first World Series game since 1945, the average resale price was $3,500.  On the lower end of the scale, that mean includes standing room only and bleacher tickets averaging $2,167 and $2,969 each, respectively.  On the upper end, field-level seats are commanding about $8,112 each.  StubHub has even seen someone pay $23,402 each for two Game 7 seats located just above the Cubs dugout at Cleveland’s Progressive field.
 
Laws of supply and demand explain how sellers can command such extreme prices for seats to a three-and-a-half-hour baseball game and why buyers are willing to pay them.  Wrigley Field’s capacity is just 41,688, and Progressive Field can handle even less, 35,225.  The populations of Chicago and Cleveland, in comparison, are around 2.7 million and 390,000 respectively.  Granted, not everyone in those cities wants to watch baseball, but many do, not to mention the tens of thousands of other fans who are willing to travel across the state and from around the country in order to see history being made.
 
Although the ‘how’ and ‘why’ of secondary market ticket sales are important, the question that really matters is a moral one: ‘Should individuals and organizations resell tickets to events like the World Series for prices far above their face value?' Or, in other words, is ticket scalping ethical?
 
First, it’s worth noting the legal standing of the practice.  In the U.S., no federal law prohibits scalping, but “15 states ban the practice in some way, most labeling it as a misdemeanor with penalties including fines and/or up to a year in jail.”  Among these states, there’s not a unified set of sanctions:  While some states take a hard line, others states only prohibit the practice within 200 feet of the stadium entrance.  These legal disparities are a good reminder that it’s problematic to base ethicality on legality.
 
Organizations should be able to resell products that they buy from others.  That reselling is at the heart of every garage sale and grocery store.  In both cases, as well as in thousands of similar ones, consumers benefit from the exchanges.  In garage sales and other aftermarkets like eBay, people typically pay less for used items that still offer utility to the purchaser.  Grocery stores, like most other retailers, sell new items (there’s not much demand for used food), at prices that are higher than what they paid for the products.  So why aren’t these stores and every other retailer guilty of scalping?
 
The main difference is that these retailers provide value-added services that result in fair prices and convenience for consumers.  Yes, I could go to Battle Creek, MI to buy my Kellogg’s breakfast cereal, but I’d rather drive a mile to my local grocery store where I can purchase the cereal and dozens of other products I need, at the same time.  That great convenience far outweighs the higher price I might be paying.
 
In contrast, professional ticket scalpers, including online brokers, do the following, metaphorically:  They beat me and other consumers to the grocery store and buy up its entire inventory of Kellogg's cereal, not because they want to eat it but because they know that we do.  Then, when we arrive, they inform us that the store is all out of the cereal, but we can buy it from them at double or triple the price.  Unlike grocery stores that charge very little for considerable value added, scalpers extract inordinately high premiums for doing something that we could easily have done ourselves—buy the tickets directly from the source, either online or at the stadium.
 
Another factor adding to the unseemliness of ticket scalping is that sporting events, concerts, etc. are highly unique, intangible products, not physical goods.  If on a given day a store runs out of cereal, smartphones, or cars, consumers normally can do one of the following: buy a close substitute, drive to another store, or wait for the inventory to be replenished.  Those options aren’t available for people wanting to experience special events, particularly not ones like a World Series game between two teams that together have been waiting 176 years for a championship.
 
Some may also wonder what the difference is between purchasing popular event tickets and buying corporate stocks.  Besides the fact that stocks represent ownership in a company, both are intangible products, bought with the belief that their prices will rise, resulting in a return for the reseller.  The main differences are the ones just described above.  Unlike an event, a stock is not tied to a specific time and place, such that if you don’t buy and experience it today, the opportunity is gone forever.  Likewise, for most people, stocks are more readily substitutable; that is, it’s relatively easy to find a similar investment.  It’s impossible, however, to find another 2016 World Series Game 5, between the Cubs and Indians.
 
Given that people continue to pay the high prices that professional scalping produces, it appears that the practice creates stakeholder value:  The scalpers are making out well and some consumers are getting what they want, albeit at a ridiculous cost.  The grey market for tickets, however, fails to uphold societal values like fairness and respect.  For these reasons, ticket scalping is an experience in “Single-Minded Marketing.” 

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Advertising Aleppo

10/21/2016

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence
People have a variety of preferences when it comes to vacations.  For some, an ideal getaway is relaxing poolside, while others enjoy more adventurous activities, like scuba diving or mountain climbing.  Even the most fearless folks, however, usually don’t want to put their life on the line for a little leisure—something Syria doesn’t seem to understand.
 
The Syrian Ministry of Tourism has released a pleasant promotional video for Aleppo, aimed at encouraging travelers to visit one of Syria’s most historic cities.  The one-minute piece, entitled “Aleppo . . . Will of Life,” features sweeping shots of the city’s unique architecture, lush parks, and other landmarks. The enticing visuals play over a familiar music bed--the theme song for HBO’s Game of Thrones.
 
The creatively choreographed clips could cause one to give a visit to Aleppo serious consideration; that is, if one is like former governor of New Mexico and Libertarian presidential candidate Gary Johnson who infamously asked in a television interview what Aleppo was.

With a population of over 1.6 million and an area of about 70 square miles (about twice as big as Paris), (5) Aleppo is Syria’s largest city. It was first settled around 5000 BC and has been recognized as a UNCESCO World Heritage site; although, most of the ancient architecture that earned it that designation now lies in ruins thanks to a civil war that has ravaged Syria and the city for about five years.
 
Because of the fighting, Aleppo has literally become a city torn in two. Under control of government forces loyal to President Bashar al-Assad, the western half has retained some semblance of normalcy.  That’s the part of the city that the Syrian Board of Tourism is promoting.  However, the eastern half of the city, controlled by rebels, Kurds, and ISIS, presents an entirely different picture.  “Entire blocks of buildings are reduced to rubble”  causing much of eastern Aleppo to look like “an obliterated wasteland” where people struggle to find daily necessities for survival.  In short, “It is a nightmare.”

As a result of the extremely volatile situation in Aleppo and other parts of the country, many nations (e.g., the UK,  Australia) have advised their citizens not to travel to Syria.  Americans have been similarly advised:

“The Department of State continues to warn U.S. citizens against all travel to Syria and strongly recommends that U.S. citizens remaining in Syria depart immediately. The security situation remains dangerous and unpredictable. Violent conflict between government and armed anti-government groups continues throughout the country. There is a serious risk for kidnappings, bombings, murder, and terrorism.”
 
So, why is Syria inviting outsiders into this dangerous environment?  An obvious answer would be that Syria is just trying to do what many other countries do—encourage tourism, which is an important source of income, especially for nations that lack other significant industry.  On the other hand, advertising Aleppo and other Syrian cities could be an attempt by the Assad regime to persuade a world concerned about the increasing loss of life and refugees that the country has everything under control: ‘All’s good here—see how peaceful it looks.’
 
Whatever the motivation for the promotion, it’s unfortunately likely that some imprudent people will accept the tourism invitation and, defying sound judgment and the many state-sponsored travel advisories, venture into the war-torn land.  Past indiscretions of travelers to Iran and North Korea offer some support for this speculation. 

It doesn’t help that the Aleppo video is decidedly deceptive.  Yes, advertising is advocacy, and advertisers are expected to put their best foot forward, but not at the expense of truthfulness.  It’s one thing to portray a product in a positive light; it’s another thing to obscure the product’s real nature.  Some have suggested that the Game of Thrones theme is an eerily appropriate choice for the Aleppo ad, given that “the show's fictional world of Westeros is a violent place engaged in its own bloody civil war.”  The music, then, might be the only part of the video that isn’t misleading.
 
Thankfully, most people are rational and will reject Syria’s tourism invitation.  Still, there are those few foolhardy folks who don’t need any extra encouragement to put themselves and others in harm’s way.  For these reasons, advertising Aleppo as a travel destination must be considered “Mindless Marketing.”
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Amazon Eschews Free-Product Reviews

10/15/2016

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence
There are few words in the English language that arouse as much excitement as “FREE.”  It’s rare when we receive something of value without needing to pay, so when we do, the economist inside of us lights up.  Why, then, has Amazon taken a stand against free stuff?
 
For many years, America’s biggest e-tailer has banned paid reviews.  Consequently, a company selling shoes on Amazon can’t pay ‘Paul’ to write a review about the sneakers he just received.  However, Amazon has allowed vendors to give free merchandise to reviewers in exchange for their evaluations, provided that reviewers disclose that the items they’ve reviewed were gifts.   So, Paul could post something like this:
 
“The X-Glide 300 is the most comfortable running shoe I’ve owned.  Its padded foot-bed and  ‘spring-step’ sole absorbs shock and cushions impact.  It has a soft and breathable upper.  It’s also very light-weight, which makes a big difference during a long run.  I received a pair of X-Glide 300s from the manufacturer.”
 
Recently, however, Amazon announced that even these types of reviews will be banned.  Why?  It’s hard for reviewers not to be biased when they receive the products they’re reviewing for free.  True, accepting a pair of sneakers is not the same as getting cash, but shoes are still significant compensation  that can persuade recipients to rate them more favorably because they didn’t have to pay for them.
 
In general, the receipt of a gift makes people feel a need to reciprocate: “She gave me something, so I should give her something.”   It doesn’t make much sense for a reviewer to give a product to a company, but the reviewer can give something even more valuable—a good review.

However, don’t disclaimers help prospective customers know that a review may be biased?  Apparently such disclosures are not as effective as one would hope.  ReviewMeta, a review aggregator and analyzer, found that one in five Amazon reviews contained a disclaimer and suggested that when they’re that common, many consumers “accept them without question.”
 
Compounding the problem, Amazon has had the habit of “factoring these paid reviews in the actual one-to-five star rating system,” although, giving them lesser weight than verified purchases.  So, consumers who just scan the quantitative results to find the highest star ratings may not be aware that those figures have been pushed up by reviews of products that the reviewers received for free.

How much exactly do the free-product reviews skew the numeric results?  ReviewMeta found that such reviews tend to be “0.38 stars more positive than their objective counterparts.”  Such a difference may seem small, but as Yahoo Finance suggests, the difference is often enough to push a product into the higher range of rankings, giving it a real edge in Amazon search results.
 
In one particular case, ReviewMeta found an umbrella with 121 reviews and an average star rating of 4.7.  All but four of those reviews, however, came from people who received the umbrella for free.  The reviewers who paid for their umbrellas gave an average rating of just 2.7.  This is pretty convincing empirical evidence of reciprocity and the notion that reviewers have a hard time being objective when they don’t have to pay for the product they’re reviewing.

As mentioned at the onset, Amazon has decided to revise its review policy, so now the e-commerce giant prohibits:
  • “Creating, modifying, or posting content in exchange for compensation of any kind (including free or discounted products) or on behalf of anyone else” and
  • “Offering compensation or requesting compensation (including free or discounted products) in exchange for creating, modifying, or posting content”
 
The revised policy applies to virtually everything sold on Amazon, with one notable exception—books.  Amazon will allow book authors and publishers to “continue to provide free or discounted copies of their books to readers, as long as the author or publisher does not require a review in exchange or attempt to influence the review.”
 
Of course, books are no small thing for Amazon; they’re what started the e-commerce giant’s success.  In 2014, Forbes reported that Amazon had $5.25 billion in sales from books, representing about 7% of the company’s annual revenue.  So, has Amazon created a convenient caveat in order to protect the sales of one of its principal products?  No.
 
There are legitimate reasons for treating books differently, the main one being that most books cost relatively little, but they require considerable effort to review.  For instance, the sneakers mentioned earlier might retail for $90 or more, while many books sell for $30 or less.  In addition, a review of the sneakers probably won’t take much time.  Someone could conceivably wear them for a couple of hours and be ready to write a short summary of their experience.
 
Reviewing a book, in contrast, is a much more time-intensive process that also requires more insight than the typical product.  Depending on their length, books can take days, weeks, or months to read.  Likewise, a person can easily spend several hours or more writing a thorough review.
 
When you put on a pair of sneakers that someone gives you, you know pretty quickly whether you like them or not, and if not, you quickly take them off.  When you start reading a book, it takes time to know how good it is, but even after you realize it’s not great, you still need to keep reading it in order to offer a thorough review.  That’s why when someone gives us a book about a topic we’re not really interested in, we may think, “Ugh.  Now I need to spend some significant time doing something I really don’t want to do.”
 
So, when reviewers receive sneakers for free, even if the sneakers aren’t the best, the reviewers might rate them highly because they get some value from them, and their review didn’t cost them much time or effort.  On the other hand, book reviewers gain little benefit from reading bad books.  In fact, they may feel like their considerable effort cost them time and potential enjoyment of other things, so their reviews are much more likely to be true to their experience.
 
Unfortunately, the full impact of Amazon’s new review policy will take time to be felt, as there will be no deletion of existing free-product-related reviews.  Those biased evaluations will just need to disappear over time as they’re replaced by newer reviews.  Still, the e-tailer’s push for more objective product information is a great step forward for consumers, as well as a strategy that will benefit suppliers of higher-quality products.  As a result, Amazon’s prohibition of reviews motivated by free products represents “Mindful Marketing.”


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Mylan's Mom Prefers EpiPens

10/8/2016

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by David Hagenbuch, founder of Mindful Marketing & author of Honorable Influence
If you were asked to name someone who believes in you and who will do anything to help you, there’s a good chance you’d say, “My mom.”  Mothers may be our most faithful supporters, but how much help should they give us?  That’s a fair question for any mom, but it’s especially relevant for Gayle Manchin, mother of embattled Mylan CEO Heather Bresch.
 
Two weeks ago, Mindful Matters described how Mylan Pharmaceuticals had allowed the price of a life-saving twin-pack of EpiPens to increase by 500% over seven years, from $100 to $600.  Besides enraging many EpiPen users, the price rise caught the attention of Congress.  However, unlike Wells Fargo CEO John Stumpf’s in his visits to Capitol Hill, Bresch made no apology.  Instead, she stood her ground, defending her company’s actions.
 
In speaking with others about the EpiPen price increase, one thing that remained unclear to many of us was how Mylan was able to command such a high price for its product when there were at least two other viable options on the market: Amedra Pharmaceuticals’ “Adrenaclick,” and a generic epinephrine auto-injector.  Why didn’t people just forget EpiPens and go with one of the alternatives? 
 
This is where Bresch’s mother, Gayle Manchin, enters and the story becomes more salacious.  You see, Manchin is no ordinary mom; she’s the wife of Joe Manchin, former West Virginia Governor and current U.S. Senator.  More relevant to Mylan, Joe Manchin appointed Gayle Manchin to the West Virginia State Board of Education in 2007, where she served until 2015, the last two years as the Board’s president.
 
Beyond her state-level role, Manchin also served on the National Association of State School Boards of Education (NASBE), which bills itself as “the only national organization giving voice and adding value to the nation’s state boards of education.”  Among its goals, NASBE aims to be “a leader in public policy,” “the authoritative source of information” for its members, and “a bellwether on emerging issues.”  Manchin even served as President of NASBE in 2012.
 
What do these roles of Manchin have to do with Mylan?  According to USA Today, after Machin took the helm of NASBE in 2012, she initiated an “unprecedented effort that encouraged states to require schools to purchase medical devices that fight life-threatening allergic reactions.”  In December of  2012, NASBE launched a “epinephrine policy initiative” aimed at helping state boards of education “develop student health policies regarding anaphylaxis and epinephrine auto-injector access and use,” which included how schools might avoid potential legal liability.

NASBE’s support of Mylan’s business was far from a one-way street.  USA Today reports that Mylan made a $15,000 contribution to NASBE in April of 2012 and later gave $25,000 more to pay for an epinephrine discussion guide.  “In October 2012, Mylan sponsored a morning of health presentations at the association’s annual conference” that included a panel discussion of food allergies.  A key participant was Ruchi, Gupta, a Chicago-area physician and allergy specialist.  Mylan reportedly has paid Gupta more than $400,000 for research she’s done, in addition to over $17,000 for speaking fees and other expenses.
 
In addition, Mylan began making inroads into schools through the launch of its “EpiPen4Schools” program, which aimed to give the company exclusive product access to tens of thousands of educational institutions.  This program later became the focus of an investigation by the New York attorney general.
 
Interestingly, all of these EpiPen-related school activities occurred only after Manchin became president of NASBE, in 2012, the same year that her daughter Bresch became CEO of Mylan, even though the association had seen food allergies as a growing problem since 2000.
 
In the end, the NASBE-Mylan marriage resulted in eleven states drafting laws that required epinephrine auto-injectors.   Meanwhile, almost every other state recommended that their schools stock them, particularly after President Obama signed the 2013 “EpiPen Law,” which gave preferential funding to schools that agreed “to plan for severe asthma attacks and allergic reactions.”  In addition, from January 1, 2012 to December 1, 2013, Mylan’s stock price more than doubled, increasing from 20.75 to 43.40 per share.  
 
So, what’s bad about one organization helping another make life-saving medical devices available in schools?  Likewise, what’s wrong with a mother supporting her daughter’s success?  Both are noble acts under normal circumstances, but the NASBE-Mylan marriage presented an entirely different dynamic, given that the heads of both entities were related.  That familial bond created an incentive for Bresch and Manchin to offer preferential treatment to the other’s organization, which came at the expense of those trying to compete without similar support.
 
At its core, the NASBE’s and Mylan’s mutual support represented a classic conflict of interest: “A situation that has the potential to undermine the impartiality of a person because of the possibility of a clash between the person's self-interest and professional interest or public interest.”  Manchin took action that was not necessarily in the best interest of NASBE because she wanted to help her daughter.  Similarly, Bresch offered Mylan’s inordinate aid to NASBE, which compromised the association’s objectivity, because she wanted to support her mother and enjoy NASBE’s promotional push into schools.

Former NASBE Executive Director Brenda Welburn told USA Today that prior to Manchin/Bresch, the association was very strict about avoiding corporate influence: at most, companies could only sponsor conference meals.  Welburn added that the sudden and significant reciprocal support between Mylan and NASBE “just looked so bad to me.”  Therein lies a major reason why other epinephrine auto-injectors have struggled to gain a foothold, while Mylan’s EpiPen has dominated the market.  The playing-field has been uneven.  Misuse of power and position resulted in favorable treatment for some and unfairness for others.

As most of us understand, business isn’t just about what happens in broad view of all.  Interpersonal relationships are often very important, and there’s not necessarily anything wrong with them, provided that they don’t form an unfair advantage for some at the expense of others.  Unfortunately, Manchin and Bresch’s familial bond created a conflict of interest that has proven detrimental to many, including many EpiPen users.  Consequently, this particular mother-daughter duo is guilty of “Single-Minded Marketing.”
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