Secret to Success

Although it was its innovation that made Google the number one search engine, the company did not make a dime until they started auctioning ads that appear alongside the search results.  Today, advertising accounts for 99% of the companies revenue whose market capitalization now tops $100 billion.

Research is now say that Google’s auction method, which was invented internally, was key to their success.  In fact the AdWords became so successful that some of its key feature were quickly adopted by top competitor Yahoo!, the then search-ad leader; they give the top spot in its search results page to the advertiser who pays the most per click.  However, Google maximizes the revenue it gets from the “real estate” by giving the best position to the advertiser who is likely to pay google the most in total, based on price per click multiplied by Google’s estimate of the likelihood that someone will actually click on the ad. As a result, it is estimated that Google earns about 30% more revenue per ad impression that Yahoo does.  

What makes Google’s auction so different? Normally, bidders always have the incentive to tell the truth.  However in Google’s auction, they don’t.  By understanding the top price, they are willing to pay, advertisers could get a slightly lower position on the search page for a lot less money.  They concluded that naive advertisers who told the truth could overbid.  The system also has pluses for advertisers too. I’m not sure it gets more innovative then this.

 

http://www.businessweek.com/magazine/content/06_10/b3974071.htm

Google is Consumer’s First Choice

Its hard to remember life without Google. But when we realize that Google was created in our life time, it dawned on us that we have lived without Google.  However, nowadays, you don’t find many people who can live with out it.  We walked around Tulane University asking students their favorite search engine?  Of the 30 people that were asked, 30 responded with one word: Google.  Further more, we decided to see Google’s standing in the rest of the world. Below are some of the results we found:

 

It became clear that Tulane students were not alone with the choice of Google.  This 13 year old search engine dominates over 3/4 of the market share.

Walmart: Consumer Behavior

Our local Walmart here in New Orleans on Tchoupitoulas Street is one of the 3822 stores across America.  Of those 3822 store, 2939 are Super Walmart- meaning they are open 24 hours a day.  This means that there is a Walmart open every hour of every day with on average about 500 people working in each of these stores.  In one store 37,000 come through those doors a week, meaning there are 220 people walking up and down those aisle.  At any given moment in the US there 850,000 American inside of a Walmart store.  We sent one of our team members down to Walmart to talk to some customers to see what they had to say about their expeirence:

Shopper 1:

How often do you come to Walmart?

About once a month

What are your main reasons for coming?

Well today they are having a special on a dog toy my dog really likes.  And I need some other things like salt, glue etc.

About how much do you usually spend on your visits to Walmart?

Probably less than 100 dollars

 

Shopper 2:

How often do you come to Walmart?

Once a week

Why do you come to Walmart as opposed to other stores?

Target is too far and involves waiting in traffic sometimes

Do you you think it is easy to find things in Walmart?

It was overwhelming at first but I come so frequently I pretty much know my way around the store

How is your experience? Like your interaction with employees?

It depends on the time of day.  At night, when everyone get off work it tends to be overwhelming and the employees are stressed.  I prefer coming during the day, everyone is much friendlier.

 

Shopper 3:

How often do you come to Walmart?

Once a month

What do you usually come for?

Mainly for electronics and miscellaneous things; sometimes groceries

How much do you usually spend?

Less then $50

How long do you spend in the store?

I’m pretty quick, in and out

Visa and MasterCard Financial Standings

Visa and MasterCard were among the few “standouts” in the financial sector in 2011.  But as 2011 turned into 2012, the two companies have seem to have fallen behind and investors are beginning to worry about legal and regulatory issues that could hurt the card companies.

In 2011, MasterCard shares gained 70.78% while Visa gained 47.71%.  However, as of date MasterCard as only increased 5.19% and Visa brings up the rear with only earning .11%.  Some analyst predicted this turn in the market downgrading both the stocks from”neutral”  from “buy.”  They argued their reasoning was that the shift to credit and debit cards from cash has slowed.  “During the 1990s, spending on cards exceeded overall consumer spending by about 9%. During the most recent decade, this slowed to about 6%,” the report states.

Along with that, investors are very focused on an antitrust lawsuit that could result in billions worth of penalties for Visa and MasterCard.  While it seems that other competing companies, such as Citigroup and Bank of America are involved in the suit, the legal agreements between the banks and “payment networks” are by Visa’a admission complex which is critical to the company’s financial health.

Below is a chart which depicts where exactly Visa and MasterCard are standing among their competitors:

http://www.forbes.com/sites/thestreet/2012/03/15/visa-mastercard-falling-behind-financials-in-2012/

(Lack of) Job Security at Bank of America

Back in September of 2011, Bank of America Corp’s Chief Executive Brain Moynihan launched a major restructuring of the company, calling it the New Bank of America,  by cutting 30,000 jobs nationwide.  Continuing working on downsizing its consumer operations, the country’s second largest bank in terms of assets, is now targeting highly compensated investment bankers and non-US wealth managers. These efforts are expected to reduce  job rolls by 2,000 people, effecting commercial bankers jobs as well.

 

The idea is to create a smaller, more focused and profitable company.  Along with that, Moynihan is trying to cut cost to weather the fallout from the company’s disastrous take over of the California based mortgage company, Countrywide Financial Corp., back in 2008.  With the global economic crisis there has been a large decline in deal-making.  Lastly, Moynihan plans for the downsizing to compensare for reduced fees and lending income in the current environment of an unstable economy, record low interest rates and tougher bank regulations.  Analysts expect addition job cuts when more details of the broader strategy become clear.  Moral of the story: job security is extremely low right now at bank of America.  Times are tough, and I am sure glad I am not working there right now.

 

http://www.latimes.com/business/money/fi-mo-bofa-layoffs-20120501,0,3114760.story

 

Walmart and Unions

This video discusses the fact that Unions in Brazil, China, UK, and Argentina exist for Wal-Mart workers. This video presents the issue in a very biased manner; however, it is interesting to learn about the unions present in other countries. Obviously this is a very controversial issue and many people have strong opinions on it.

Wal-Mart has been criticized recently for its policy on unions in the United States. An article was just posted in the Washington Post about Wal-Mart’s policy focusing on the fact that Wal-Mart has worked with unionized employees in the United Kingdom. Workers here are not happy about the current policy in the United States. In response to the angry workers, the chief executive stated, “We have a local philosophy… It’s our intention to demonstrate that we are a great corporate citizen.”

Source:
http://www.washingtonpost.com/business/economy/wal-mart-works-with-unions-abroad-but-not-at-home/2011/06/07/AG0nOPLH_story.html

Wal-Mart Financials

Wal-Mart is one of the American institutions as far as companies. We are all well-aware of its small-town origins and entrepreneurship spirit it represented through its founder, Sam Walton. As such, it operates its business through three reportable segments: Walmart U.S., Walmart International and Sam’s Club, and it is extremely profitable. Its net income has steadily increased year after year 2008 to 2012, from $12.86 billion to $15.77 billion.

The Walmart U.S. segment includes the company’s mass merchant concept in the United States and Puerto Rico operating under the Walmart brand as well as walmart.com. It does business in six strategic merchandise units namely Grocery, Entertainment, Hardlines, Health & Wellness, Apparel and Home.The Walmart International segment is comprised of wholly-owned subsidiaries operating in Argentina, Brazil, Canada, Japan, and the United Kingdom. It offers a limited amount of consumer credit products, principally through Chile, Canada and Mexico. Although, Canada’s operations are growing rapidly. While the Sam’s Club segment includes the warehouse membership clubs in the United States and Puerto Rico as well as samsclub.com.

EPS is an especially attractive characteristic of the company as it has seen them grow year over year, like net income, but most notably a jump from 2010 to 2011 of 20.75% from 3.71 to 4.45.

Wal-Mart is an attractive investment if it continues to capitalize on its international segment, and if it diversifies its positions domestically to cater to the new generation of shoppers that are more accustomed to smaller, more personal atmospheres.

 

 

 

Wal-Mart’s New Small Store Strategy

Wal-Mart strategy is ingrained in seeking out the customer and attracting them with a proposition Everyday Low Price (EDLP). Its cost-cutting strategy promotes savings that a consumer, or rival seller, cannot deny. As a result, same-store sales for the “Neighborhood” store are up. Due to the encouraging reports, Wal-Mart is now trying to tap into an $80 billion market by setting up more of these “smaller” versions of the gigantic, typical Wal-Mart Supercenter retail outlet.

The argument for such a strategy is that the Supercenter market is saturated by competitors including Target and Costco. As a result, the company will open 150 new stores Neighborhood stores around the United States to capitalize on the demand for smaller, more personal shopping, a stark contrast from the sterile and endless lanes of merchandise in the megadepots.

These smaller stores are approximately one fifth of the size of the former big-box locations, but the reason for expanding them now is because the company has lowered cost, increased profit margins, and boosted sales to the point where it was only a matter of time until this strategy was going to be employed.

Coca-Cola: Can I work there?

Working for any MNC can cause ethical concerns for some due to their corporate practices and business tactics; however, working for a company with the breadth and longevity like Coca-Cola is appealing for others.

It is the most recognizable brand in the world, and as such, would bring along plentiful opportunities to travel and work abroad in important emerging market segments as evidenced by the post below concerning operations in Saudi Arabia. For instance, the soft-drink market exploded 11% last year in China. The top non-alcoholic beverage is Sprite, a Coca-Cola drink. Furthermore, the company owns about 21 manufacturing plants in the country alone. As a young professional, I personally would love international assignments for a year here or a year there as I would most likely be at a point in my life where I am truly mobile before settling down.

Coca-Cola has extensive list of benefits on its website, found below.

The benefits range from a full medical insurance to a Matching Gifts Program, which promotes a corporate culture of success.

 

Coca-Cola Strategy

Coca-Cola employs a “push” promotional strategy. It creates consumer demand by deploying its extensive sales forces and utilizing its trade promotion activities. The company is successful in employing this strategy as its main rival, PepsiCo, has called for a cease fire in the cola war between the two companies.

Pepsi, facing sluggish results in the past years, cannot compete with the behemoth, forcing the CEO, Indra Nooyi, to call for a restructuring plan and a larger focus on the “liquid refreshment segment” as opposed to the “carbonated soft drink” segment. This is a clear sign of defeat in that they are no longer operating profitably, or at least to the investors’ approval, to continue waging tastes tests advertisements on television. Below is an actual advertisement from a 1983 Pepsi commercial.

Although, this advertising strategy proved successful at first, Pepsi’s market growth proved unsustainable.

Coca-Cola’s sheer size and spending power on advertisements and promotions are too dominating for competitors. Its’ commercials appeal to the emotional rather than the rational as evidenced by the clip below. This advertisement has amassed 1.2 million views on YouTube, and is a clear testament to the brand equity Coca-Cola has in the eyes of its consumers.