Tuesday, December 30, 2008

400,000 sausages

I have recently discovered a podcast that caters to my new found interest in numbers and statistics by the name of “more or less” a BBC run podcast hosted by Tim Hartford, author of “The undercover economist” (great book by the way).

One of the topics discussed in a recent podcast was the widespread hysteria surrounding the finding of high levels of Dioxins in some Irish pork which led to a recall of all Irish pork from the market. On the face of it, I suppose people were justified in being a little bit worried, after all it was Dioxins that were used to poison Ukrainian President Victor Yushenko.

Of course it was not long till the reputable newspapers such as the Sun, Mirror and Mail got out there with the respective headlines: "Toxic Irish pork is swept off shelves","Poison pork panic: Irish pigs were fed on plastic bags" and "Shoppers told: Don't eat toxic Irish pork"... Not so hard to see why people might start panicking.

However behind the scary headlines and uninformed hysteria lay a numerical truth to the situation. An analyst on the podcast commented how in order to reach the levels of Dioxin that poisoned Mr. Yushenko, an individual would have to consumer 50,000kg of tainted pork, or put is sausage terms, that would be a whopping 400,000 sausages.

So with that in mind how many contaminated sausages you would have to eat to achieve Yushenko-esque levels of poisoning? With an Irish life expectancy of 77.7 years:
400,000 divided by 77.7 divided by 365 = 14.1 dioxin contaminated sausages a day for the rest of your life.

Although the above example may be a bit unrealistic, what really would be the effect if one were to eat sausages for breakfast, lunch and dinner. A nutritionist on the podcast had his own opinions on that particular choice of diet: “The first thing I would suggest if you get your cholesterol checked” adding that “Even if you consumed that amount of pork, would there be any risk from the dioxins, in all probability the answer would be no”

So one very public health scare and more than a few damaging headlines later we are left with an Irish Pork industry that has taken a huge hit, and whose future is uncertain. Again this comes down to omission of certain facts by the media in order to make a story more than it is.

Sunday, December 28, 2008

Key accounts - Big... Beautiful? (Ed)

Jo my German friend wrote a post yesterday about "Key account management" here, it discussed how your big customers (in terms of sales volume) may not necessarily be worth the effort, money and time spent that must be spent to keep them happy
I had a few thoughts on this myself:

Degree of customer independence
I suppose one thing that needs to be taken into account when talking about these “Big customers” is whether they hold any weight in the decisions made by other parties in the marketplace.

Suppose that “Compu Co.” sells a type of computer to retail shops all around the country, their biggest customer accounting for more than 20% of their sales is PC World. Although this relationship takes a disproportionate amount of time, money and effort PC World are judged as the industry leaders by the competition and all the smaller players purchase according to the trends set by the industry leader. In this case it may be worth the money and effort expended on keeping this “key account” going strong, as a consequence they receive stronger sales from the other 80% of customers who judge their product to be superior to the competition – “it must be, PC World just bought 10,000 of them!”

However if the “Key account” company does not have such sway over the other operators in the marketplace and is completely independent, as I would assume is the case in the majority of b2b relationships then the importance and priority attributed to keeping the big guys happy needs to be re-examined.

The influence of a customer down through the supply chain.
Some industries may be structured so that one set of large customers have a hugely disproportionate say in what gets sold at a later stage in the market. From my own experience the example of pharmaceuticals manufacturers and hospitals comes to mind.

In Ireland the network of Irish hospitals are considered a “Key account” not primarily because of the quantity sold in the actual hospital, but because the decisions made in the hospital have wide reaching effects into the market as a whole.

Hospital pharmacies are able to purchase pharmaceutical products at a heavily discounted rate in comparison to their private sector counterparts, with the manufacturers employing the logic that whatever drug they get prescribed in the hospital, will continue to be received by the patient outside the hospital. So by selling the hospital cholesterol lowering drugs at bargain basement prices, the company have now ensured that 54 year old Johnny will be paying for these on the outside world till death do them part.
As much hastle as it is to maintain these hospital relationships – its is most certainly worth it.

Eggs and Baskets.
To keep it short: nothing is certain, especially in this economic climate. If your key account worth 30% of your sales were to... go out of business... where would that leave you. Expect the unexpected.

They are just my observations on the situation, and in summary I think Jo is correct, the fact is that many companies seem incapable of distinguishing a difference between a customer that provides Sales volume and one that provides superior profitability. Exceptions certainly exist however, and I suppose the lesson to take away from this is that analysis of WHY your supposed "key accounts" are important should be thorough and ongoing.
for example below... big... NOT beautiful

Saturday, December 27, 2008

Guest poster - "Jo"

I am happy to announce that my good German friend Jo will be contributing a few guest posts on this little blog of mine. I had the pleasure of sharing my final year of marketing with Jo and he taught me a thing or two about work ethic and ways of analysing situations. Jo shares some of my pet peeves and odd obsessions so I see his posts as being a good fit for the blog.
Introducing Jo:

Let me say HI first and briefly introduce myself. Most people call me Jo (short for my long full German name Johannes) and I got to know and work with Ed while I did two exchange semesters at UCD. I am really thrilled to write a little guest entry for Ed’s blog and the two of us hope to make this somewhat regular… I am studying business administration and economics with specializations in marketing and services management. At the moment I am working with a consultancy with a focus on marketing and strategy in Luxembourg.

Key accounts - Big... Beautiful?

“Size matters not. Look at me. Judge me by my size, do you? Hmm? Hmm. And well you should not.”
Yoda (Star Wars)

In my recent consulting work I did a project that focused on the design of a key account management (KAM) - sometimes also referred to Strategic Account Management - strategy and the implementation and realization of KAM.

Many companies in different industry generate a significant share of their revenues with few customers – the so-called key accounts. In some extreme cases, even the old 80-20 rule is proven true, meaning 20% of customers create 80% of the company’s sales.

During the course of the project, I did some background research and stumbled across a really interesting article by some researchers from Warwick (Piercy & Lane). They wrote a paper about the dangers of key account management which I thought was well worth reading. In a nutshell, their message to CEOs and marketing VPs was to examine KAM a bit more critically. It is quite in line with my observation in the “real world”.

While there is a lot of fuss about increasing sales and strengthening the competitive position in these large accounts, very few actually discuss whether these large accounts are really as attractive as they seem, especially in regard to their profitability and fit with overall company strategy.

Is should be noted that the installation and maintenance of a KAM strategy and systems are likely to lead to further increase the costs to serve these large customers. It is important to note, that big is not always beautiful and especially, if your sales come out of an 80/20 situation, you may want to seriously reconsider your business model.

Of course, revenue generated is an important factor, but size should never be the only or main decision criteria for deciding whether an account is strategic/key or not. While Yodas sentiments may be a little too much, it should not be size that is prized alone either, finding balance as always is key.

Sunday, December 21, 2008

Is there a doctor in the county?

Above is a map detailing the number of General practitioners per county in Ireland.
I was pretty amazed to find out there are circa 3900 GPs in the country, about 1 for every 1,100 people.
Dublin leads the way with over 1,100 GPs registered in the county.

Aer Lingus: Death by rejection?

Well 2008 is almost behind us and the Aer Lingus/Ryanair saga continues with no sign of an agreement in the near future. In my opinion the continued blanket refusal by Aer Lingus to consider a takeover by Ryanair is completely unfounded and ridiculous.
Firstly it is clear that sentimentality and politics are getting involved in the situation, where clearly this should not be the case. The “state run company” attitude is still following Aer Lingus around like an unprofitable shadow and is clearly getting in the way of important commercial decisions, like say... dropping an unprofitable route:

“Also at the hearing, Aer Lingus has been told that unless it re-instates a Shannon to Heathrow service, there would be considerable support among TDs for the Ryanair takeover bid. A number of TDs from the Shannon region said there was still a lot of anger there, about the pull-out”

The fact is that Aer Lingus is not a charity, it does not OWE any airport in Ireland anything, the airline should be able to make commercial decisions without having TDs from the Shannon area interfering and I have a feeling that a management headed up by Michael O’Leary wouldn’t stand for this constant interference from these irrelevant parties.

My second point of contention with the anti-Ryanair takeover crowd is their insistence that the takeover bid “significantly undervalues Aer lingus”:

Ryanair says the proposal represents a premium of about 28% over the average closing price (€1.09) of an Aer Lingus share for the 30 days to November 28. It also represents an premium of about 25% over the closing price of €1.12 of an Aer Lingus share on Friday.

Given that Ryanair offered 25% over what the market values Aer Lingus at, I find it bizarre and absurd that someone would argue the bid “undervalued” the company, again this act of denial of financial reality is another example of the complete ignorance of the Aer Lingus board as to the state of their company.

Some interesting facts from Finfacts.ie:

Since 2006, when Aer Lingus rejected Ryanair’s €2.80 offer, they have:

  • Spent over €24 million on its defence of Ryanair’s 2006 €2.80 offer

  • Allowed its director’s basic annual fee to almost treble from €17,500 to €45,000

  • Allowed its non-executive Chairman’s basic annual fee to increase fivefold from €35,000 to €175,000

  • Increased short haul fares by 7% to €94Increased fuel surcharges 5 times to a current average of €75 per sector

  • Aer Lingus’ forecast operating losses for 2008 and again in 2009
In summary I suppose I would like to tell the Aer Lingus board to get real, a Ryanair takeover is the best option for the continued existence of the company. Its time for Aer Lingus to get the sentimentality of “the good old times”, and the politics out of its decision making, its also time to have a management that is not afraid to make tough decisions, and its time for Aer Lingus to get a strategic plan that will ensure the companys long term survival.

Thursday, December 11, 2008

Damn Lies

Having dealt with a large amount of data in my line of work in the last while I have become more than a little bit sensitive and touchy about a few things related to the area of statistics. The above quote sums up what I am trying to get at here, being the constant hijacking of various bits of information, and presenting them in a way which, by exluding other relevant factors is completely misleading and unhelpful.

I talked about this briefly a few posts ago where I mentioned the importance of putting things in CONTEXT before judging them to be relevent/important/interesting in any way at all.

Well the nice folks at the Irish times gave me something to grind me teeth to yesterday: "Ireland ranks fourth dearest in price survey"

Now I realise what they are saying is for the most part correct, Ireland is undeniably an expensive place to live, but it is the inclusion of sentances like "a trip to the movies checks in at €8.22, down from €9.50 last year. By contrast, a cinema ticket in Lithuania costs just €3.63." which get me a little worked up.

Yes the absolute euro cost is almost three times higher, but to willingly OMIT the fact that the GDP per capita is 6 times higher in ireland ($51600 in Ireland vs $8590 in Lithania (2006 UN stats link)) renders their argument on this instance completely meaningless, seeing as going to the cinema in Lithuania, on a Lituanians wage, would take up more of the average persons income.

This example is by no means an isolated example, these "news stories" crop up all the time and all they do is serve to misinform and confuse people... Lies I tell you! Damn LIES!!!

On the British VAT plan

It seems like I am not alone in my views on the British governments "big plan" to get consumer confidence back up, the decidedly timid 2% cut in VAT.
Germany's finance minister Peer Steinbr├╝ck had a few choice words on the matter which appeared in this weeks newsweek.

"Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain's debt to a level that will take a whole generation to work off"