Starbucks Promotion

A couple of weeks ago Starbucks rolled out their new line of instant coffee. I tried it; it's not bad; I even bought some, though I haven't used it yet. What grabs my attention, though, is how hard they've been pushing it.

The quality of Starbucks' coffee is a topic of high debate for some. I am one who likes their coffee. Every morning I get a tall cup of their over-the-counter coffee, with flavored syrup. The syrup is free because I have their rewards card.

This week, I have left my rewards card at home, lost it, whatever, so I've been paying a little more than two bucks for my drink. Two for two this week, Starbucks has offered to 1) give me free syrup and 2) throw in a three-pack of their instant coffee for $1.95 - less than the nominal value of what I'm buying in the first place.

That's right: they are offering their instant coffee for free and charging me less.

Yesterday It took the deal. Today I didn't. I already don't know when I'll drink the instant coffee that I do have. When I'm traveling, maybe?

In any case, it's something to bring up in marketing. How low will you go to promote your products? What's Starbucks' game here - to goose the numbers, to move product, to encourage people to try it?Hard to tell.

The Current Classload

So, we are officially three weeks in to the Fall 2009 semester, one quarter of the way through. I ought to comment on my current classes, Corporate Finance and Marketing.

Now that we've learned how the sausage is made (in Foundations of Finance) it's time to apply that to corporate planning. So far, we've learned how to model discounted cash flows for use in determining net present values, and to use NPV to make go/no-go decisions on projects. I find this very interesting, as I work in IT and I've worked on many projects from the ground level; now I am learning how they are valued and decided. Next up is risk assessment, which centers on gauging the beta value of a project, line of business, or segment.

Marketing is similarly proving to be much more interesting than I anticipated. It's a Saturday morning class, which I don't mind at all; it's an excuse to stop by my favorite bagelry (Murray's on 6th, just below 14th st). Marketing is so closely tied to strategy, I'm considering it as a specialization. All this time, I thought marketing came afterwards, but it seems that the intelligence gathering and product testing elements can actually help drive strategy.

Valuation

So in Corporate Finance, we're talking about valuation - how to value a company or a capital project. I work in IT, so it's interesting to see how the financial end of the decision-making process is managed. So many technology projects are rolled out with no concern as to the initial or ongoing expenses, and no regard as to what processes they are replacing, it's wasteful. 

Our case for last night's class had some interesting nuances to it. It revolved around a pharmaceutical company considering an opportunity to license an unapproved drug from another company. The pharmaceutical company would pay the costs to test and shepherd the drug through the FDA approval process. What was interesting to me was how to factor in the chances of successfully getting through each trial, along with the potential for the drug to have more than one benefit. 

Once the options were laid out in a decision tree, it was just like game theory: start at the end, and work backwards to see which branches were profitable. As it turned out, they all were, though some were more profitable than others.

My own company is engaged in the same process, but in reverse. We are divesting one of our flagship business units. How do you place a value on that? According to class, we'd have to look at the net present value of the company, which, based on their business model to date, would be diminishing (this is my speculation, and not a representation of my company's position, or based on any information not already public). What are the employees worth - thinking back to Strategy II, is this business unit an EVP or AVP proposition? From where I sit, they're on the cusp, and that makes the valuation all the more awkward.

JDs, MBAs, and JD/MBAs

I found a little bit more on the previous subject of JD/MBAs. It seems that generally, an MBA is seen as an enhancement to a JD, but that a JD adds less to an MBA.

JD/MBAs are often seen as neither fish nor fowl within either professional track. Law firms worry that they'll jump to more lucrative non-legal job opportunities, and businesses don't know what to do with the JD half of the degree. The exception seems to be specialized fields such as investment banking, or related M&A work, where the combination of legal diligence and business analysis becomes more important.

http://writ.lp.findlaw.com/hilden/20080414.html

My Fantasy Alternate Reality

Lately I've been perusing the possible specializations I might obtain with my degree: Strategy, Economics, Operations, Law & Business. This last is particularly interesting to me right now.

It's difficult to explain why I'm interested in law and business. Maybe it's because regulation and politics - both firmly rooted in the law - are kind of hot right now. Maybe it's because I tend to be far more qualitative than quantitative. Maybe I just like making arguments. 

I spent three years simply being interested in the law, not counting post-college mental perambulations. Five years ago I was reading about law, talking to lawyers and almost-lawyers. I read www.nylawyer.com every day over my morning coffee. I toured Fordham and Brooklyn law schools. I paid off all of my consumer debt, then studied for over a year and took the LSAT.

I bombed. Still, the allure of law persists.

It's tedious and detailed. I work in IT, which is already tedious and detailed. There are kinds of rules, regulations, the mechanics of our society. Come to think of it, I was first enamored over ten years ago, when I worked at a dot.com startup and the telecommunications industry started to deregulate. What does it all mean? How does this work? Instead I moved to NYC to work in media, and ended up in IT instead.

When I first set out for an MBA, I was going to go to Baruch. They have a JD/MBA program with Fordham and Brooklyn. Granted, these are not toppity-top ranked schools but they are well-regarded in the city. As it stands now, getting my MBA at NYU significantly impacts the kind of opportunity cost I'm willing to take on for a second professional degree.

But still, I dream of law school. Reading up on contract law, torts, interstate commerce clause. It all sounds so fascinating, at least until there's a test on it.

Maybe I'd be better positioned now as a full adult in school, not a young'un trying to be cool and high-achieving and encountering setbacks for the first time. I have much more fortitude than I did in my twenties.

More than anything else I like to know what I'm talking about, and these days, I'm more interested in talking about government and business than, say, the annual politics of a film festival, or the latest album by some arty Canadian band.

Law school, we never had ye, but ye be missed.

Recession, Worker Pay, Health Costs

Slate's "Slatest" has two oddly juxtaposed items today.

First of all, a recent poll indicates that many employers expect to shift the cost of health care more to their employees, noting that costs are increasing rapidly; an estimated 166% in the next ten years to an average of $30,000 per employee.

Second, people are getting raises - and it's not just financial seers. Apparently, for those who managed to keep their jobs, not much has changed, pay-wise, beyond the ongoing fear, uncertainty, and doubt permeating the economy in general.

Unrelated: Lego, Boeing

Two articles in the NYT caught my eye today. Oddly both mention business news about two companies I liked when I was a kid.

I loved Legos, and spent all kinds of time building moon bases, spaceships, houses, submarines, and much more. I would be one of those adults slightly disappointed that all Legos seem to be based on licensed settings now. That said, it seems to be a strategy that works.

I built spaceships because I was into aerospace, and my granddad would take me out to the airport to look at planes; we greeted the Concord when it came to Tulsa. Boeing was one of those Big American Companies I saw mentioned all the time, and it's been interesting to read about them in some of my classes - in particular, my microeconomics class featured a case about the Airbus SuperJumbo vs the Boeing Dreamliner.

I have to admit I was partial to the Dreamliner, partly because so much of the case history told the story of what Airbus was doing wrong and Boeing was doing right. Either way, they both pursued different markets. The case history stopped around 2005, when Airbus was first encountering production delays - and now, apparently, Boeing is as well, in large part due to their outsourcing model.

(Tangent - this is the kind of problem outsourcing always brings about. I don't believe outsourcing is particularly good or bad, but it certainly requires more orchestration on the part of the outsourcer, something most are not prepared for. In my current position, it's clear that we can't just turn over functions to our outsource partners, though I doubt that, as Boeing has, we'll end up buying one of those partners).

http://www.nytimes.com/2009/09/06/business/global/06lego.html

http://www.nytimes.com/2009/09/06/business/06boeing.html