MURKETING

Oil, incentives, and alternatives (again)

Some brief follow-up material about the price of oil, consumer behavior, and energy alternatives. (Earlier mention here.)

Steven Mufson of the Washington Post wrote about the issue on October 20, and more recently talked it over with public radio show Word of Mouth.

And, on Marketplace yesterday:

Already, U.S. pickup demand is back on the rise, after collapsing earlier this year. Their sales share is nearly what it was before oil prices hit their high-end tipping point. [GM research executive Tom] Kloza says, so much for the buyers being changed forever.

Similar themes all around: The fear that weak oil prices, leading to cheap gas, can end up meaning that innovation-searching slows down, because consumer demand (and thus the profit motive) aren’t sufficient.

I wouldn’t say we’ve actually hit that point. Actually in some ways the number of stories on this proves we aren’t.

But what I want to add here is that I kind of think this GM guy gets off the hook a little too easily: If GM believes it’s important to sell smaller vehicles with better mileage, then make them and sell them. It’s disappointing if it’s true that consumer behavior change on this is so easily susceptible to backsliding, but whatever. Toyota didn’t need $100-a-barrel oil to develop the Prius.

Oil, alternatives, and incentives

I’m more than a week late in pointing out Roger Lowenstein’s interesting article for the Times Mag about oil and oil prices, but if you’re interested in the subject, I recommend it. In addition to explaining oil-price fluctuations more clearly than I’ve seen anybody else do it, he has some great forward-looking points.

Back when oil prices were first soaring past $125 a barrel and George Soros was blaming speculators, I started to write a post here saying I hope he’s wrong because the high price (while it seemed illogically overdone to me) was clearly focusing attention on sustainable oil alternatives, etc. I never finished writing it because, ultimately, the post I conceived sort of depended on the idea that oil prices could seriously collapse, which just seemed so outlandish to me at the time I didn’t see the point.

Anyway, so here’s Lowenstein — a writer I have a ton of respect for, very smart and very lucid — making a more sophisticated version of that point. Instead of thinking about popular opinion as a lever on policymakers, as I was, he’s thinking private industry. Basically, there’s a relationship between the price of oil and the incentives for investing in alternatives to it: “When you ask economists what the minimum oil price is to sustain the development of alternatives to gasoline — new battery systems or sugar ethanol or even wood chips — you get a range of something like $75 a barrel to maybe $150.”

Lowenstein doesn’t come out totally against oil, what he’s making a point about is oil dependence, and in what it takes to inspire companies to make the necessary investments that could lead not just to new oil reserve discovers, but to completely new alternatives.

It would be a tragedy if falling prices were to extinguish such alternatives and — given the time lag inherent in energy development — leave the country vulnerable to a yet another round of shocks… .

What the country doesn’t want is to remain dependent only on oil — to lose the urgency to develop alternatives. It happened once before. After the gas lines of the ’70s, Jimmy Carter declared that solving our energy problems was the moral equivalent of war. Then, in the 1980s, Americans forgot.

He closes by suggesting (in a revival of a Gerald Ford idea) a tax that would kick in if oil fell below $70 a barrel — basically setting a floor.

Interestingly, when the piece was written, oil was at around $80 a barrel. Today it’s at around $63.

Optimism v. pessimism again, this time eco-focused

Back in February I had a short post pondering what a bad economy meant for the “green” movement. (Funny, February seems like it was a giddy boom period compared to today, eh?) Two more recent views on that question:

A Marketplace report is largely pessimistic: “Financial Crisis Is Not Eco-Friendly.”

A piece on The Big Money, by Eric Pooley, offers a more optimistic view: “Save the Economy, Save the Planet.”

Hard work redeems

It occurs to me that I have an easy rejoinder to those who continue to insist that the last ten years have shown a notable uptick in consumer savvy. That rejoinder is: “Premium denim.”

But maybe I’m wrong about that. Interested as I was to see this brief photo essay of a Kentucky denim factory that “specializes in distressing high-end jeans,” I was really interested in what the photographer said about his visit:

I used to scoff at paying a premium for jeans that come with holes in them already. Then I saw just how much work goes into distressing jeans, and I realized that these people are artists.

Hm. Well, I’m sure they do work very hard and have lots of skill and so on. But is the idea that seeing a lot of work go into something you thought was kind of pointless thereby redeems that thing? Would you find Crocs (or whatever it is you find absurd in consumer culture) more appealing if you knew they were really hard to make?

If this question interests you, don’t miss the spirited debate in the comments appended to the photo essay.

Via BB.

Unconsumption as marketing tool

Missed this earlier, but Brandweek had an interesting quick overview of how e-waste “has gone from being a headache to a marketing tool.” Example:

Sony, which [recently] announced the availability of its lower cost Bravia M line of LCD TVs, has paired with Waste Management, Houston, for a series of events around the country. The “Take Back Recycling Program” invites consumers to leave behind their unwanted devices for no charge.

The mention of the new LCD TVs is relevant, because it sounds like most of these efforts are being positioned as add-ons to campaigns that are, inevitably, focused on getting you to trade up to something new (which is of course a big part of the e-waste problem to begin with). As Brandweek notes, there’s a good chance that concern about e-waste is only going to get more intense in the near future, as the switch to digital broadcasting consigns a huge number of cathode-ray TV sets to the dump.

So in a way this trend, if it’s real, seems more defensive than enlightened. And it all falls far short of manufacturers flat-out taking responsibility for their products in an end-to-end way that, say, Greenpeace encourages. But whatever. Maybe it’s a good start, maybe it gets the issue into more consumer minds, and it’s certainly better than nothing.

Water fight

Pretty interesting piece in Business Week about  the battle in a Northern California town over whether or not to let Nestlé (“the largest bottled water company in America and purveyor of the Perrier, Poland Spring, and S. Pellegrino brands”) build a huge spring-water-bottling plant there.

A few interesting bits:

Nestlé employs 11 water hunters around the U.S. Besides monitoring water supplies, they search for new sources, typically in remote, pristine places like McCloud. A big part of their job is building relationships with locals, few of whom have dealt with a multinational.

And:

A pall of aggrievement hangs over Nestlé Waters’ headquarters. There’s an attitude that essentially asks: Why us? CEO Jeffery has been in bottled water since the late 1970s. He worked at Perrier until Nestlé bought it in 1992 and put him in charge of Nestlé’s North American water business. And he has long seen his product as a healthy alternative to soda in a nation that is increasingly obese.

For several years now, Jeffery says, he has watched other companies win green cred for what he deems smoke-and-mirrors publicity stunts. A couple of years ago he recalls not being able to sleep, getting up and heading to his Greenwich study to write down the 10 things Nestlé was doing to reduce its carbon footprint. One of those things was designing the lightest-weight water bottle currently on the market. Jeffery also notes, correctly, that water bottlers use less H2O than makers of soda or beer. …
But soda and beer makers typically don’t mine pristine springs; they use tap water. So, for that matter, do Nestlé Waters’ main rivals, Coca-Cola’s Dasani and PepsiCo’s Aquafina. It’s instructive that Nestlé Waters was the only company asked to attend Congress’s first-ever hearings on the bottled water industry in December.

Deconstructed denim

Marketplace had an interview yesterday with Rachel Louise Snyder, whose book Fugitive Denim: A Moving Story of People and Pants in the Borderless World of Global Trade sounds interesting. Maybe your jeans say “Made in Country X,” but that’s not the whole story, she says:

You’ll have the cotton grown in a place like Uzbekistan or Azerbaijan — and in my book, it’s Azerbaijan — and maybe Turkey and then that’s woven, all the cotton from those countries is woven for consistency into one large roll of fabric and then its dyed in a different country like Italy and then sent maybe to India, where it might be cut, and then sent somewhere else. But you might have six or eight different countries involved in that process because of the way trade rules are set up.

And also:

We’ve now come up with these standards for food where it has to say where our food is processed and where it’s grown, but we don’t have those same standards for clothes.

Reminds me a bit of Travels of A T-Shirt in the Global Economy, a book I thought was pretty good, although I believe this one is more of a journalistic account, while Pietra Rivoli’s was a little more economics-focused. Anyway, I’m generally a fan of any account that gets beyond the oversimplified versions of ethics and consumption that tend to dominate. Check out the interview (transcript or audio) and see what you think.

Great moments in promotion: Tainted swag

Anne Elizabeth Moore points to this Brandweek article:

Japanese car shoppers who test drove a Nissan vehicle were given a free logoed coffee mug for their time as a thank you. At least one consumer probably wished he had said, “No, thank you.”

According to reports, after drinking from the China-made freebie, he felt ill. It was later discovered that the mug contained excessive amounts of lead. More than 140,000 mugs were subsequently recalled. . . .

Recall revisited

As you may recall, this very site wondered allowed in mid-August, when the blame-China response to the Mattel recalls was at its most mindlessly shrill, whether the magnet problem — which caused a much larger number of toys to be recalled than the lead paint problem — wasn’t a design issue, not a manufacturing issue.

Apparently Mattel says the answer to that question is yes.

Mattel has said repeatedly that its biggest recall had nothing to do with China or shoddy production.

That recall of more than 17 million doll accessories and cars — coming just after one lead-paint recall of Chinese-made products and in tandem with another — was because of high-powered magnets that could break loose and pose a serious danger if swallowed.

The problem, Mattel’s Eckert said again and again, was in design, not manufacturing.

Nevertheless, as this story indicates (via Wal Mart Watch), at least some politicians and other observers are determined to make this a demonize-China story. And maybe the speculation that Mattel is simply kissing ass to keep in China’s good side is correct. But next time read a hysterical assessment of the “China poison train,” at least keep in mind that the story might be more complicated than that.

Recall question

Here’s what I don’t quite understand about the latest recall, of various Mattel toys. It’s being positioned as another example of the China/supply/manufacturing-chain problem. About 250,000 of the toys had lead paint on them, as I understand it, and this seems consistent with that positioning, since the paint is being blamed on murky subcontracting.

But most of the recall is about something like 9 million toys with small magnets that can (I gather) easily come out and be swallowed. That sounds more like a product-design issue, no? If the design included these little magnets, and did not include any way to prevent them from being removed or whatever, then what difference does it make where the design was executed?

Moreover, it appears that some of these 9 million toys being recalled were actually sold as many as four years ago. Mattel was already involved in an earlier, similar recall, and a different company that had a similar problem with small magnets has already paid out millions of dollars to settle lawsuits on this same issue.

I’m not saying the magnets aren’t a serious problem, because from what I read it sounds like they are. I just don’t understand the general suggestion that the problem is the fault of shady outsourced manufacturing firm(s). Maybe I’m missing something?

Factories and branding

Previously noted here: Good questions raised by Notbillable about the “startling fact” highlighted by the pet-food recall that scores of brands were all made by the same manufacturer.

The WSJ has a good story on this today, by Ellen Byron. She got someone from Menu Foods to talk, at least a little, and offers plenty of context and examples of how widespread similar practices are, across many industries.

“The sheer magnitude of how many branded products come from one source erodes the whole basic premise of what branding is in the eyes of the consumer — they feel duped,” says Eli Portnoy, who heads Portnoy Group Inc., a Los Angeles-based brand-strategy firm.

Duped by branding? Say it ain’t so!

Good questions

Here’s the most interesting bit I’ve read regarding the big pet-food recall that you may have heard about:

Part of the problem: the food “was sold under 88 brands, including popular labels Iams and Eukanuba and private-label brands sold at large retail chains. Nestle Purina PetCare Co., Colgate-Palmolive Co.’s Hill’s Pet Nutrition Inc. and Nutro Products Inc. also recalled some products made by Menu Foods.”

That’s 88 brands. Has any one of them stepped forward to communicate directly with consumers? I’m asking because I haven’t seen anything. Only press releases. It’s early I know but if someone’s visiting a pet food web site today, there’s only one reason. Why isn’t a substantial recall message on everyone’s home page? At this moment, no word of any recall at all on a Purina site.

Is it because no one wants to address the startling fact that 88 brands — everything from cheap Ol’ Roy to Eukanuba — come out of the same 2 plants? How do you explain that? Can you? It’s a situation that baffles even pet experts: “How can a more expensive and theoretically higher quality food be made side-by-side with lesser products?…where is the quality control or oversight by the companies whose names are on the cans?….If each brand was actually being made according to a separate recipe, then what need would there be to recall every can made for every company during a three month period – unless they all shared common ingredients before being labeled and priced differently?”

That’s from a post at Notbillable.

Quiz

So here’s the question I should have asked at the end of the other day’s entry about manufacturing in the U.S. and lux products and automation of manufacturing and all that.

Okay. So, let’s say you want to Buy American, you like the idea of Things Made in The United States, possibly because that means they are likely to be Sweatshop Free. Well, what about a product that’s made in United States — but in a completely automated factory?

That is, there’s no worry about exploited labor, because it’s all robotics and machinery. On the other hand, it still represents a threat to blue-collar employment, or at least it does nothing to help the manufacturing laborer in the U.S., at all. There’s no suffering — but there’s no solidarity.

Does it matter? Ethical plus, ethical minus, or ethical wash?

Making it

The “Outlook” column by Mark Whitehouse in the WSJ today notes that while we think all manufacturing is leaving the U.S., that isn’t quite so. For example: “U.S. production of audio and video equipment surged about 2% in December and was up 23% for all of 2006.”

So what’s being made in the U.S.? Whitehouse says it’s stuff that’s just not practical to make elsewhere.

One area of strength: high-end goods like top-of-the-line $6,000 Sony Grand WEGA TV sets and $15,000 Sub-Zero PRO 48 refrigerators, which appeal to the affluent folks who have been driving much of the growth in U.S. consumer spending….

“If the thing being sold to the U.S. market is locally customized, delicate, or very large, chances are it’ll continue to be produced in the U.S.,” says Bruce Greenwald, professor of business and economics at Columbia University in New York.

Hey, so maybe lux tastes will save the U.S. factory worker! Well, no. Of course this represesnts a “tiny fraction” of manufacturing. But even the gradual fatttening of this thin segment isn’t likely to create more manufacturing jobs. The Sub-Zero factory in Madison is producing more, but it’s not increasing its workforce.

Across the manufacturing sector, the picture is similar: To stay competitive, companies are doing everything they can to boost productivity — that is, make more stuff with fewer people. “Manufacturing in the U.S. is headed toward plants that have no people in them,” Prof. Greenwald says.

Here’s the link for WSJ subscribers.

Labor problems

You may have noticed a headline here or there last month, noting that Nike was ending a contract with one of its offshore suppliers, a Pakistan-based manufacturer called Saga Sports. The problem was evidence that Saga was using at least some child labor.

The Christian Science Monitor has an article taking a more detailed look at this, written by David Montero. “By severing its contract with Saga, Nike is likely to score moral points with its customers in the West,” Montero writse. “But it’s also likely, observers agree, to sink Saga, a corporate giant that makes about 6 million of Pakistan’s annual production of 40-million soccer balls,” employs thousands of stitchers, and depends heavily on Nike as its top customer.
Saga is based in Sialkot, Pakistan (population: 3 million), where the article says that 80 percent of all soccer balls are produced, adding up to a $210 million business category that employes around 45,000 stitchers. (“For as long as there have been soccer balls in Sialkot,” which is more than 100 years, “the hands of children have stitched them,” the piece adds.)

Obviously the article doesn’t suggest that child labor is okay, nor does anyone quoted in the piece say so. But it’s a pretty interesting look at a problem that’s more complicated than it might first appear to be. Check it out.