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The Roundup September 9

The credit card grave
Rest in peace. It was good having you around. It’s better having you gone.

Of course, with credit card rates pushing 30% and credit card companies acting more and more like looters than lenders, the contraction of consumer credit not only makes sense, it’s more like an inexorable law of the physical universe.

Credit card debt outstanding in the United States has fallen by nearly $70 billion in less than a year and continues its downward spiral, according to a government report released yesterday.

The Federal Reserve said Tuesday that consumer credit outstanding in the U.S. declined by $21.5 billion in July, the largest monthly drop on record. The annualized rate of decline, 10.4 percent, was also the largest on record. . . .

The Fed, in its monthly G.19 report on consumer debt, said that revolving debt – mostly credit cards – fell at an 8 percent annual rate in July, or by $6.1 billion. July marked the 11th straight month of declines in credit card debt. . . .

In July, non-revolving debt – like that found in auto, student and personal loans – paced overall declines in consumer credit outstanding. The Fed said that non-revolving debt contracted by $15.4 billion, or at an annual rate of 11.7 percent. The G.19 report does not cover real estate loans.

(“Consumer Credit Contracts at Record Pace in July,” Inside ARM, September 9) Two trends are happening during this recession that will severely change the role of consumer credit in the national economy. The first is that consumers are becoming accustomed to living without credit. They’re buying in real time, paying down debts, and saving for purchases. That trend alone would not be enough, in my opinion, to permanently alter the consumer credit landscape. But while people are learning to rely less on credit to make purchases, the credit card companies and other ARM (accounts receivables management) institutions are chucking good sense and basic morality out the window and adopting Mafioso-level usury rates and downright despicable business practices. You can download the statistics about the current credit card and ARM business problems at the Inside ARM site. But let an anecdote suffice. Five months ago we purchased 4 tires at Goodyear. At checkout, they offered us a credit card. We could put the full payment on that credit card and have no interest for six months. So we agreed (no interest is a good deal). We calculated how much to pay each month to pay off the entire loan in five months. We set up our bill pay service to automatically pay the monthly installment on the 3rd of each month, seven days before the balance is due. Three months go by. Someone over at Goodyear notices that we’re going to zero out the balance in two more payments, so they . . . move the due date forward 12 days. Bang! Late fee! Bang! They charge us interest for the entire balance for the first three months! Bang! They go back and calculate our monthly payments and adjust them for the interest now due, thus raising the amount of principal we owe! And then . . . they move the due date back to where it was. We pay off most of the rest of the loan. Bang! They retroactively move the due date forward 12 days! Late fee! Interest on the late fee! Whatever business ethicists may have to say — and there’s plenty to say from a business ethics standpoint — these are clearly not the actions of a business that believes in the underlying soundness of its business model, which the Inside ARM confidence survey state far more convincingly. It’s only when people are convinced they can make money no other way that they start holding up liquor stores. (Naturally, we’ll be buying Firestone tires from now on.)


Blankfein says bankers make too much money. Don’t expect a bonus refund soon.

Mr. Blankfein, who was the highest-paid chief executive on Wall Street a few years ago but did not receive a bonus in 2008, said Wednesday that some kinds of pay structures were hard to justify and suggested new curbs were necessary.

“Compensation continues to generate controversy and anger,” he said in the statement. “And, in many respects, much of it is understandable and appropriate. There is little justification for the payment of outsized discretionary compensation when a financial institution lost money for the year.”

He also said: “Multiyear guaranteed employment contracts should be banned entirely. The use of these contracts unfortunately is a common practice in our industry.”

(“Blankfein on Bonuses and Regulation,” New York Times, September 9) I’ll believe it when I see it. As Saint Augustine once said, “Lord, grant me chastity, but not right now.” Many of the employment contracts simply don’t make sense, but who’s going to be the first to jump out of the lemming line? If Goldman Sachs starts rationalizing pay and employment contracts, then their superstars will jump ship to Bank of America. Even now, Goldman Sachs is busy preying on other banks for their top talent. “Hey! We won’t give you a multi-year guaranteed employment or any bust-the-bank bonuses!” That’ll snag prospective employees every time.


This is how you use Facebook and crowdsourcing to market a new product . . .

Vitaminwater is turning to Facebook fans to come up with its next flavor.

The “Flavorcreator” Facebook app, which launched this week and runs through Oct. 20, is designed to crowdsource the company’s next product. Eric Berniker, vp, marketing for Vitaminwater, said that in the first phase, the company would “eavesdrop” on Facebook and Twitter conversations about which flavors are gaining in popularity. After that, the company will diagnose which vitamins and minerals consumers want via a Facebook quiz. Finally, fans will be called in to develop a name, design and copy for the bottle.

(“Vitaminwater Crowdsources Next Drink,” AdWeek, September 9)Social media marketing is built on two foundations: business intelligence and tapping customers for ideas and innovations. Everything else is just some Web 2.0 version of direct marketing (I am always flummoxed by all these idiots that think a Facebook friends list is the same as an opt-in direct marketing list and sell crap like Monavie — is that how you treat your “friends”?) Do you see the three steps to Vitaminwater’s campaign? Gather customer intelligence, solicit customer intelligence, solicit customer ideas and participation. Taking notes? Or are you still stuck in the creative doldrums by sending crummy ads on Twitter and Facebook?


Microsoft trains Best Buy drones to talk smack about Apple.

After our coverage from yesterday regarding Microsoft training material for Best Buy employees that not only makes Linux look bad, but is also full of inaccuracies . . . Redmond was doing the same thing for Apple. . . . The format is the same: Redmond isn’t just saying that Windows has more software or games available than Mac does, but the software giant is actually going as far as teaching employees that there are certain statements about Macs that need to be labeled as myths.

(“Microsoft helps Best Buy employees troll Mac users, too,” Ars Technica, September 9) Okay, I’m a lifelong Mac user (since 1984). I learned PC’s on Amigas, but I became a heavy user after buying my first Macintosh. I’ve always owned PC’s (first DOS and then Windows), but didn’t move all my work to PC’s until about 2000. While I still bust around in my Mac and piddle around on my PC with Red Hat Linux, I still do most of my work on Windows. And I have to confess that I’m an operating system agnostic. If you’re a “fan” of Macintosh, Windows, or Linux, frankly, I think you need to get some serious life happening in your life. So I looked over these slides as a faithful Mac and Windows user and you know what? They’re right. Which is why, even though I don’t care one hoot in hell about operating systems, I do most of my work now on a PC. The problem, though, is this: in advertising, you know you’re in trouble if you’re both the market leader AND you’re attacking your competition. Why? Because it instantly makes your competition more credible. You’re the brand leader and you’re attacking them, right? Must mean that you’re scared, right? Scared that they might be better than you, right? Which means they might just be better than you, no?

Either the folks in branding at Microsoft have had their heads irradiated or they know something that we don’t know about prospects for the Macintosh operating system. Either way, this kind of presentation is a strategic disaster for Microsoft — even if it never goes public — and a doubly worse branding disaster for Best Buy. Take notes. Never talk smack about your competition when you’re the brand leader. It’s the first step to losing your brand leadership.

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