When it Pays to Nickel and Dime Your Customers

Maybe it's because my primary business is a commodity type business - I've generally believed in trying to price to clients in a way that accurately allocate costs they incur to our business. It's not as easy as it should be as I'm always still fighting to ensure our business is simple enough to understand. Fighting to charge for the cost of credit/working capital for instance is often an uphill battle.

It goes back to clearly understanding where and how you build and generate value for your clients and charging accordingly for those goods and services.

Michael O'Leary from Ryanair may be my new hero. He makes a fantastic point that nickel and diming isn't meant to generate revenues it's meant to change behavior (WSJ):

We now have to be more inventive in the way we lower costs, which is why we're looking at things that seem revolutionary to other people.

Like, paying for checked-in bags: It wasn't about getting revenue. It was about persuading people to change their travel behavior—to travel with carry-on luggage only. But that's enabled us to move to 100% Web check-in. So we now don't need check-in desks. We don't need check-in staff. Passengers love it because they'll never again get stuck in a Ryanair check-in queue. That helps us significantly lower airport and handling costs.

Now we're looking at charging for toilets on board—not because we want revenue from toilet fees. We'd happily give the money away to some incontinent charity. What it means is, if by charging for toilets on board, more people would use the toilets in the terminals before or after flights, I could take out maybe two of the three toilets on board, add six extra seats and reduce fares across the aircraft by another three or four percent.

So, there's always new ways of lowering costs, but you have to come at it with some imagination and some passion.

Remarkably, despite the mother of all recessions, Ryanair is "on course to keep growing and post strong profits again this year".

Making the US Healthcare System Work

A rather more elegant solution than this (CNN). More here (Reason.com). [Sorry, still really bogged down with work... more blogging to come]

Laugh of the Day

The 20 Unfortunate Lessons Girls Learn from Twilight via Instpundit:

From a male point of view, the only redeeming feature of the Twilight books and movies is the ammunition they provide against female claims of innate moral superiority over men.

I confess I've seen New Moon. I was fortunate enough not to see it in a packed room of screaming teenage girls, just three who were sitting behind us. The most hilarious part of the movie was when they all audibly gasped when Taylor Lautner took off his shirt in a ridiculous scene to dab a small bit of blood off Kristen Stewart.

Summarizing the Subtleties of the Sino-American Relationship (in 7 minutes)

Mildly offensive, quite amusing and unfortunately but substantially true (NBC embed):

From Daniel Drezner (FP): "Over the weekend, Saturday Night Live's cold open managed to summarize the subtleties of the Sino-American economic relationship in under seven minutes. Note that, although it appears that President Hu has the power because he is repeatedly berating Obama, the content of the skit suggests otherwise. Hu's repeated complaints that the United States is, er, "doing sex" to him demonstrates the very limited leverage China has over U.S. policy."

(If the embedded video doesn't work because you're not in the US, assuming it's still up, check it out at Youtube)

Tax Cuts vs Stimulus Spending

Imagine that: the People are/were right. It turns out that it's tax breaks that make a bigger difference to economic growth: "Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases." From Harvard's Alberto Alesina and Silvia Ardagna via Greg Mankiw.

They even go further, pointing out that to reduce debt and deficits, spending cuts are more effective than tax increases.

Update: I just don't get it sometimes. 56% of New Yorkers believe the state will be broke by year end (RasmussenReports). So far not so surprising. But then there's this: "An overwhelming 81% of say the bigger problem in New York State today is not that voters are unwilling to pay enough in taxes but that politicians are unwilling to control government spending. Just eight percent (8%) think the bigger problem is voter unwillingness to pay enough taxes." Do these people vote?

WSJ: The Henry Ford of Heart Surgery

You don't have to be a healthcare policy wonk to appreciate the achievements made at the Narayana Hrudayalaya Hospital in Bangalore, India. It's a hospital that has a higher success rate, performing far greater volumes at a cost that's a 10th of what a typical American hospital might charge for open heart surgery. As founder Dr. Devi Shetty notes, "What health care needs is process innovation, not product innovation."

Here's a graphical summary from the WSJ (makes you wonder what the Christina Yang's (Wikipedia) of the world are doing in the US):


For the bleeding hearts out there, here's an anecdote of how Dr. Shetty makes healthcare affordable:

K. Parashivappa, the boy's father, a sugarcane worker from a village eight hours away, held a cup of water to his son's lips. He says he's known his son needed surgery since he was born with a congenital heart defect. The boy has never been able to run and play cricket like other children, hobbled by chronic shortness of breath and weakness.

Mr. Parashivappa says he can't himself pay for the surgery, but it is covered by a farmers' insurance plan that Dr. Shetty began several years ago in partnership with the state of Karnataka, which includes Bangalore.

Nearly one third of the hospital's patients are enrolled in this insurance plan, which costs $3 a year per person and reimburses the hospital $1,200 for each cardiac surgery.

That is about $300 below the hospital's break-even cost of $1,500 per surgery.

The hospital makes up the difference by charging $2,400 to the 40% of its patients in the general ward who aren't enrolled in the plan. An additional 30% who opt for private or semi-private rooms pay as much as $5,000.

The father, in an untucked brown shirt, raised both hands to offer the traditional Indian greeting, "Namaste," to Dr. Shetty as the hospital head stopped by his son's bed. "Thank you for giving my son his life back."

Read the whole thing (WSJ). While I'd be somewhat uncomfortable with whether the level of subsidization is sustainable, the hospital has a higher level of profitability than its American counterparts. With any luck, Narayana Hrudayalaya Hospital will do for healthcare what Compartamos is doing for microfinance. Of course, the ideas here aren't exactly new but probably executed far better than the US system allows.

The term "focused factory" in healthcare was termed and popularized by US researcher Regina Herzlinger (I first learned of her work with her book Market Driven Health Care). Perhaps I'm burying the lede here, but there's a healthcare revolution already happening in the US and while I've worried that healthcare legislation winding through both Houses would crush innovation, stories like this show that if the US doesn't lead the world, others will.

Giggle of the day

From a time lapse image gone awry (AwkwardFamilyPhotos):

Optimism for Humanity Just Rose a Few Notches...

RasmussenReports: "To Create Jobs, Voters Say Cut Taxes and Stop Spending". Sorry, have been battling a rather bad round of jet lag as of late. A bit annoyingly am looking at returning back to Asia fairly shortly. Lots that I want to talk about but that's a bit of the problem. Having to pick and choose... while trying to wade through a mindblowing amount of work.

Aid, Marketing and Faking Accountability

Bill Easterly's Aidwatch has a good new post on the Bill and Melinda Gates' "successes" in fighting malaria in Zambia.

Preparing to return to a long dark winter (and a few notes on microfinance)

Perhaps the recent cold miserable winters have something to do with the fact Americans are starting to lose interest in global warming (via the Opinionator, NYTimes). Myself, I'm just dreading my returning to the cold from the considerably more tropical climes of China (not to mention Cody) though it's been a rather busy visit and I haven't yet finished everything I've wanted. As something of a PSA, here's a posting on how to put together an emergency winter kit.

I also wanted to welcome any new readers (I seem to have gotten a small spike) from a recent mention on the MicrofinancePracticeGroup listserv (Nabble) where I'm a sometimes and reluctant participant. It certainly wasn't publicized in the most complimentary of ways, but appreciated none the less.

While I'm not convinced that I'm not an ideologue - particularly if that means I'm driven by a set of beliefs and ideas, but I'd like to think that in the very least I'm pragmatically so. And insofar as my interest in microfinance and development goes, I have a few strong opinions as to what will work and what won't based on what has worked and what hasn't. While I can't say that it's changed much since I first became a participant on the group, and while there are clearly a number of notable exceptions, I find it most unfortunate particularly for those in under developed countries, that for some participants, microfinance is nothing more than another form of social activism where the laws of economics and reality have no place.

For me, the most fundamental question in this debate over high interest rates and profitability in microfinance is not whether I or anyone else feels uncomfortable or finds it "reprehensible" or "indensible", but rather, does it work? Paradoxically, the evidence seems to suggest it does (WSJ) - just as economic theory suggests it should. Further, I find it strange that these same social advocates refuse to acknowledge that a choice often exists between the provisioning of financial options and high(er) interest rates.

Borrowers readily accept these options given that the alternatives are not only worse, but in the case of working capital loans they're able to achieve returns significantly greater than the interest rates charged. Microfinance is also not a panacea. It's not the ideal intervention in countries where the basic preconditions for economic do not exist - ie political stability and property rights, it's an accelerant to the seed of entrepreneurship that exists in all cultures because of the search to build a better world not only their progeny but the rest of us.

Finally, a travel guide I can use...

Internet speeds and costs around the world (courtesy of SwissMiss):

Learning Engrish

So I've been swamped in China and it hasn't quite been convenient to post but I thought I'd briefly break my silence to let a few people who care about these things that I'm still alive.

A number of my colleagues use this English learning software that teaches them a phrase each day though I'm beginning to wonder about the content provider's sense of humor. Today's phrase? "Do you get a kick out of watching me suffer?" to which I of course happily responded "yes."

The Power of Lean Startups

If you're interested in startups, watch this video! It makes a number of remarkable observations of how and why this is an amazing time to develop a startup while increasing the probability of success -

Oddly seductive

As I rush to tie up loose ends before I head back to China - while Crunchgear might find it too creepy to have around, I think these are pretty cool... It's made by Panasonic and it seems to already be in the market in Japan. This could replace your Roomba (I find it somewhat remarkable how many people I know have Roomba's) - a robotic pillow-like slug:

Stewart Brand: urbanization, development and environmental 'heresies'

From "the man who helped usher in the environmental movement in the 1960s and '70s has been rethinking his positions on cities, nuclear power, genetic modification and geo-engineering."

While he's clearly gotten a lot more optimistic in many ways, his views on resources in the long run (and his view that we'll have resource wars) are, um, limiting and are still wrong because they discount energy substitutes like natural gas, and advancements in technology. Still, some pretty brilliant observations on development and urbanization. Watch the presentation here (TED):

Must be in a silly mood...

Had a good chuckle over this (Instapundit).

Why additional education spending isn't the answer

[No matter the question]. Granted, this American data - but it's as remarkable as it is dramatic (Cato) - charting US federal spending per pupil and results since 1970:

The Media Disconnect

As a libertarian and "believer" (if you can call it that), in free markets, one of the biggest problems I have explaining/figuring out is how some of the traditional media outlets have survived for so long when their facts can be so easily verified and questioned.

Granted, their power (and economic power) is waning and has only been accelerated by the net, but given that they can't possibly be surprised about the unprecedented levels of access that the net provides. I can't tell if they're just remarkably sloppy or actually willful in their disregard for what a reasonable person might consider reality. Sometimes I wonder if there's much of a difference in the quality of news put out by state actors than the level of group think coming out of dead tree journalists.

Let's ignore for a moment what you might think of the more prominent political examples of Acorn or even Van Jones (US News). Let's look at Roman Polanski.

I've long been a fan of my.yahoo.com because it provides me with what various wire agencies like AP and Reuters consider their top news stories sorted according to things like top news, top international news, etc.. It provides me with some perspective of what I might otherwise miss from my overflowing blog reader. So let's compare and contrast.

Admittedly, I learned first of the Roman Polanski story (that he was arrested - though I had heard of his "plight" long ago, and even sympathized with him because I thought it was just a simple case of statutory rape - ie sex with a minor that happened long ago) from Instapundit that in turn linked from Megan McArdle who states: "You would think we’d busted him for unpaid parking tickets. The guy drugged a thirteen year old girl in order to rape her."

I glance over this morning to the Associated Press and one of what they call their top international news stories: "Polanski asks Swiss court to free him from custody". Nowhere in the article do they say anything about the drugging - in fact they go on to state: "His victim, Samantha Geimer, who long ago identified herself, has joined in Polanski's bid for dismissal."

Alright, I may even accept that some 13 year olds look older well beyond their years. That said I've also been a fan of Megan McArdle, but we all have our bad days and maybe McArdle was just being particularly unsympathetic in a case of what the AP seems to play off as a case of consensual sex admittedly with a 13 year old - and a more youthful indiscretion in the case of Mr. Polanski. Heck, apparently even the person he 'raped' doesn't seem to think it was that big of a deal - which is sort of magnanimous of her - so maybe it was consensual? After all, this is a man whose achievements that the AP goes to great lengths to extol.

So I googled "Samantha Geimer". One of the first articles: Polanski Rape Victim: ‘He Took my Innocence’. Here's an excerpt:

Samantha Geimer — known as Samantha Gailey when the film director plied her with champagne and sedatives before assaulting her when she was just 13 — says the filmmaker knew what he did was “wrong”.

“What he did to me was wrong and he knows it was wrong, I’m still living with it today,” the 45-year-old former model said in an interview in 2005. “He took sex from me and at the same time my innocence.

Granted, the article doesn't say she hasn't joined the bid for dismissal - but surely, her views would merit more than a one liner - unless of course the editors chose to admit it because it didn't fit within the general thrust of the story - ie 'those crazy puritan American bumpkins - how dare they attack a film icon'.

Frankly, I view this story is largely inconsequential (at least to me - there are enough things in the world to be outraged by) beyond what appears now to be the AP's complicity in Roman Polanski's predatory rape of a child. But it defies imagination that some of these journalists are the same ones who lament the stupidity of the general public for not supporting what is supposedly a public good. Let's assume for a moment that they've just been willfully ignorant. At the very least, it makes you wonder what else they aren't covering - especially on issues that have greater meaning and impact to most of us.

As I think Glenn Reynolds pointed out a long time ago, the traditional media outlets aren't being killed by the internet. This is suicide.

Howard Kurtz, a columnist at the Washington Post notes: "If Polanski was an ordinary Roman, and not an award-winning film director, we wouldn’t be having this debate. There is sympathy for him because he’s considered a great artiste. The Hollywood elite wouldn’t give Polanski the plumber the time of day if he had sexually assaulted an underage girl. And that suggests to me a stunning double standard."

Glenn Reynolds goes on to say "You can tell a lot about a governing class from who it’s willing to cover for." Truly.

What I've Been Reading

I think there have been a number of particularly great articles especially under what I've termed "Productivity, Psychology & Inspiration". Yeah, it seems like the interesting list keeps getting longer... though I suppose maybe this means I should post it more frequently.

Development
Making fun of celebrity advocates (aid watch)

China
Profits at State Owned Enterprises down 20% (chinaeconomicreview.com)
Stricter rules require government officials to disclose assets (reuters.com)
China inflation could spark yuan appreciation in 2H09 (chinaeconomicreview.com)
Don't worry about inflation in China ... for now (eapblog.worldbank.org)
The dollar is dead - long live the renminbi (telegraph.co.uk)

Economics, Politics & Regulation
Outfoxing the chicken tax: People respond to (perverse) incentives (gregmankiw.blogspot.com)
Telegraph: The UN loves Barack Obama because he is weak (telegraph.co.uk)
[Proud to be Canadian:] Canada boycotts Iranian UN speech (ottawacitizen.com)
Family businesses prioritize survival over profitability? (economist.com)
For those who want legislators to read every word of every bill (volokh.com)
How i became a Keynesian (tnr.com)
2010 State Business Tax Climate Index (taxprof.typepad.com)
And don't let us catch you being neighborly again (reason.com)

Technology & Trends
The NetFlix prize - another success for crowdsourcing (bits.blogs.nytimes.com)

Productivity, Psychology & Inspiration
Tightwads and big spenders are attracted to each other and then make unhappy marriages (futurepundit.com)
Why you should buy 5 year old car and sell it after 10 years. (PDF) (infochimps.org)
Catch a liar by making him draw (neuronarrative.wordpress.com)
If you need to work better, maybe try working less (wsj.com)
We're more likely to behave ethically when we see rivals behaving badly (scienceblogs.com)
Examine hand gestures and smiles to detect lying (lifehacker.com)
Susquehanna: an inspirational tale in the world of finance (phillymag.com)
33 ways to get and keep yourself motivated (dragosroua.com)
Meet the man who sells $89 million of diapers each year online (inc.com)

Strategy, Sales & Marketing
Business development: Forming partnerships, brand extensions (sethgodin.typepad.com)
Wronged customers respond better to apologies than cash (economist.com)
Biggest sales management coaching blunders (sellingtobigcompanies.blogs.com)

People Management
The kinds of employees you want to hire (businessweek.com)

On "Bad" Profits

Ranting on regulations that will end up restricting biotech at the expense of big pharma in the new healthcare bill (the Atlantic):

Profits are good when they result from providing a service people want. When they are the result of capturing the government by cutting special deals, they're immoral and inefficient. And this is just the beginning . . .

This at least explains big pharma's support of the recent US healthcare bill.