New bakery in my neighbourhood and their sales strategy

Yesterday evening I was a little hungry and my stomach was asking for something sweet. So I went to the new bakery that opened two weeks ago just across the street. They had tons of applie pie, banana bread and many other biscuits and cakes which looked really good, but I decided to have two donuts.

When I ordered them, the shopkeeper said to me: "Three donuts cost the same as two, 1.50€ - so I'll give you three, ok?". "Ok", I answered, although I wasn't that hungry. "One donut is 0.90€ and two or three donuts cost 1.50€", the shopkeeper repeated. When I went back home I couldn't stop wondering whether such a "three for two" strategy was really appropiate for that new bakery. Shouldn't they sell two donuts at, let's say, 1.30€ and three at 1.50€?

I suppose you all know "TheEconomist", a monthly business news magazine. Some time ago they used a very similiar sales strategy as the bakery from my neighbourhood. I don't remember the exact prices, but a subscription to the printed version of The Economist cost around 60€, while the suscription to the online version cost 120€. And there was also a third option: the subscription to the print and online version also cost 120€. So what was the sense of the second option (online version only)? Who would prefer it over the third option? Most probably... nobody. Most likely, the second one was a kind of a benchmark for the other two and it made the third option look less expensive.

I guess the new bakery from my neighbourhood tries to apply the same sales strategy: three donuts may seem less expensive if they cost the same as two. I'd say it's a good idea as many people will end up buying three donuts instead of one. Nevertheless there may be one hitch: some people may want to eat only two donuts and not three, especially if they're on a diet or if they just count their calories (with one of those fancy calorie counters). But this is something that the bakery will have to figure out – I'll let you know you if they stick to this sales policy or not.

Interesting Business Ideas: Human Vending Machine in Barcelona

Barcelona is famous for its architecture, its lifestyle its beaches its multicultural flair. But it's also famous for sports: FC Barcelona, Messi, Iniesta, Olympic Games, Pau Gasol... and a Human Vending Machine!!!

If you ever visit Barcelona, make sure you go to the MIBA Museum – Barcelona's Museum of Ideas and Inventions. It was founded in 2011 and hosts really strange stuff like a microphone cleaning mop or a flowerpot which automatically turns itself towards the sun. But its latest "attraction" is really interesting for all fitness lovers: a Human Vending Machine!

This machine was invented by Pep Torres and DigaliX in 2009. Basically it's an stationary bike that is attached to a vending machine. If you want some cookies, a coke or some potato chips, you won't need any money, but you'll have to sweat a lot.

Depending on the product you want to "buy, you'll have to bicycle more or less miles or kilometres. You can find some pictures of this vending machine on the museum'sFacebook page. One might wonder whether this invention is really useful bceause nobody would buy it for home use. But we always complain that our kids and our students are overweight – so why don't our schools buy some "Human Vending Machines" and have our children sweat a little bit? I don't that these "human" vending machines could be much more expensive than the ordinary ones, it could help to reduce obesity among children.

This crisis is over – this is our future

You probably have already wondered when the crisis will be over, but you probably also want to know what Europe is going to look like after this “GreatRecession”. Actually there are many different opinions and predictions, and nobody can possibly know what the future is going to be like. But it's still interesting to speculate...

This crisis is (almost) over! The debt crisis that started in 2009 will come to an end very soon, states and governments will have to reduce public expenditure and our social insurance systems will soon belong to the past. If you want a retirement or old age pension you'll have to start saving money when you're young. Take a look at the population pyramid and you'll understand why this is likely to happen: European birth-rates are just too low, and they won't probably change in the future; if you don't have a job or you don't know if you'll be dismissed next week, having children may not be the beast idea.

Actually Germany is the best example of what the (post-crisis) future in other European countries is going to be like (especially in the PIIGS): Germany solved its own crisis at the beginning of the 21^st century by reducing social security benefits and by creating state-subsidized jobs (a worker gets a base salary from his employer but also a couple of hundreds of Euros from the German social security system). Those who don't find a job (and will probably never find one again) get “Hartz 4”- basic welfare benefits which include 382€ per month, housing and health care. Some people have good jobs, some people have “bad” jobs with “bad” salaries and some people just wont' find a job again.

And other countries have recently started to copy the “German Model”: In Spain people who are unemployed receive approximately 400€ per month from the state and, in some cases, “adequate” housing. As the unemployment rate is going to peak at 27% in the near future, only those who are highly skilled will have the chance to find a decent job; many Spaniards will have to work more than 10 hours a day if they don't want to be dismissed. And many of them will have to live on 400€ a month.

You don't believe this? You believe in economic cycles? So do I, but I also think that European companies don't need so many European consumers anymore: they can easily find them in Asia or Latin America.

Cypriot Haircut – what are the consequences?

The Eurogroup says that Cyprus is the modelfor future bank rescues. Well, actually we should be grateful for so much sincerity and it proves that politicians don't always lie. But we should also be scared: the consequences of a “Cypriot haircut” are manifold and tragic. 

100.000€ might seem a lot of money, but actually it's not. Somebody who starts working at the age of 25 and saves 250€ a month will have amassed 100.000€ by the time he's 60. What the European Union is telling those Cypriot savers is that they're guilty... guilty of what? Of having worked hard and saved money? After this disastrous “solution” designed by the European Union nobody can blame the young Europeans if they don't see any sense in working hard and saving money. And this is a real problem. All those who have studied some basic macroeconomics know that saving equals investment. How is Europe going to compete with the US, China, Brazil or Mexico if no entrepreneur and no business can borrow money from a bank because there is just no money left?

All those people who have more than 100.000€ in their bank account may consider transferring an important part of their savings to another bank account. As the haircut was applied only to the Cypriot banks' clients who had more than 100.000€ in their accounts, risk diversification by appropiately allocating your assets (i.e. your savings) is just a logical consequence. This could have a really, really negative impact on banks which do not have any liquidity issues at all because they could lose many customers and their deposits.

Many people wouldn't even feel comfortable about putting their money into a bank account. Look at Argentina: even 12 years after the “corralito” many Argentinians keep their hard-earned Pesos (or US Dollars) at home. They don't trust banks anymore. Again: no efficient banking system, no investment, no growth. 

What about the small businesses that have 100.000€ in their bank account? Would they also be affected? Wouldn't they go bankrupt as well?

If you knew that the European Union would take away 40% of your savings, would you still be interested in buying a car, clothes or shoes? This is what's happening in Cyprus: the shops and streets in Nicosa are empty.

In the end it may even be better to leave the Eurozone – at least according to Paul Krugman.

And now you may ask: who's next? According to der Spiegel it could hit Malta or even Luxembourg...

What Merkel and Cameron don't want you to know about Romania

It seems that Germany, the United Kingdom and the Netherlands (among other European countries) don't want Romania to join the Schengen area. Romania's bid was rejected by the Council of Ministres in September 2011 because of a lack of anti-corruption measures and the influx of illegal immigrants from Ukraine or Moldova. The British even considered launching a campaign in order to dissuade any potential Romanian workers from immigrating to their island, and the Germans were concerned that thousands of Sinti and Roma could take advantage of the German social insurance system.

I'm sure you still remember the meat adulteration scandal: foods that were supposed to contain beef were found to contain horsemeat. And yes: the horsemeat came from Romania, which motivated Germany's state television to broadcast a couple of documentaries about poor Romania. “Who wouldn't want to leave such an underdevelopped country?” many German spectactors may have wondered.

So why was Romania allowed to join the European Union in the first place if it's such a horrible place? Well, first of all: it's not horrible at all. If you've ever been to Bucharest, Brasov or Constanta you'll find that it's a modern and civilized European country, which is why Romania's tourism industryis groing steadily.

And Romania has potential – if you don't believe me, you might trust Nouriel Roubini. As a matter of fact, you'll find lots of Zara, Mango and H&M stores in Bucharest. More and more people drive foreign cars (expensive ones like Mercedes or BMW, and less expensive ones like Opel or Renault) – 20 million people is quite a big market. And it's also cheap to produce your products in Romania and to export them other European countries (no customs, no tolls...).

Many American companies (like HP or Oracle) decided to open their European headquarters in Bucharest. Why? Well, because 95% of young Romanians speak English and many speak other languages, too (especially French, Spanish, Italian or even German) – you won't find that in any other European country. Ok, maybe in Sweden, Denmark or the Netherlands, but their salaries are also much higher.

Last but not least: Romania's educational system is really good. Did you know that Romania rankedfirst among all European countries at the 2012 Mathematical Olympiad? And that Romania has one of the highest computer scientists ratios of the world? I guess this is the real reason why the German and the British governments don't want Romania to join the Schengen area: more competitors. They're not afraid of an invasion of poor Romanians, but of an invasion of highly skilled workers (which could have a negative impact on the wage level). But let's face it: Romania has one of the lowest unemployment rates of Europe and wages increased by 22% since 1990– why would you leave your family and friends behind if you have a decent job and salary?

And by the way: I'm not Romanian and nor am I trying to promote Romania. I just don't like that “black/white mentality”

WhatsApp and Rational Thinking

WhatsApprecently announced they were going to charge (some of) their users0,99$ for their services. The users' reactions were really harsh: many of them immediatley started looking for alternative mobile phone messengers like LINE or KakaoTalk, critized WhatsApp on Facebook and felt “screwed” by the company (I'm not kidding; one of my contacts said that on Facebook).

Eventually it's not really clear what WhatsApp is going to do. It seems that that some users won't have to pay, others already had to pay and some just stopped using WhatsApp. But why would somebody consider 1$ to be a disproportionate fee for a service that you can use everyday (24/7) and that is really usueful? I can think of two contradictory explanations (maybe you can think of more):

First reason: People try to maximize their utility

If you study basic Microeconomicsyou'll learn that people always try to maximize their utility and that they're completely rational – we're all “homines economici”. Well, in this case users can save 0,99$ a year by switching to any other messenger. The users' utility would increase by 0,99$... but there's always a “but”... They also have to tell their friends that they stopped using WhatsApp. They could inform them by publishing a post on Facebook or by sending an e-mail, which can be time-consuming. Furthermore, it's probable that some of their friends won't see nor read these messages. So they'll have to call them and tell them that they started using a new messenger, which costs money. In the end these people might save a couple of cents by switching to Line or KakaoTalk. Do you really think those guys are completely rational? Well, they're as rational as those people who pay 500$ for a handbag which was made in China and cost 15$... which leads me to the second possible argument...

Second reason: There is no “homo economicus”

People are not rational. Actually the intelligence quotient of 50% of the global population is below average (if you assume that intelligence is normally distributed) – maybe “irrational” is not the most appropiate word to describe them...

More Business Schools, more growth, more everything...?

The positive impact of higher education on a country's economy is beyond all question: there are many studies and surveys that show that investing in higher education and economic development correlate.

(You may read Larry Gigerich's and Elisa Stephen's articles if you want more information).

But is this also true for business schools? Given that many MBA programs are really, really expensive and elitist, one would expect that the most developped and fastest growing countries also have the most business schools. Some people don't think so, like Thomas Sattelberger (T-System's former CEO) who said that MBA graduates behave like John Wayne when they become managers in a company.

I decided to analyze the data that is availabe on business schools and their impact on economic growth. It's really easy to find out the number of business schools per country: you just have to go to wikipedia and you'll find a detailed list of these instituions per country. In order to keep things simple I focused my analysis on European countries. 

It's pretty obvious that big countries like Germany, France or Italy have more business schools than Luxembourg or Cyprus. Therefore I divided the populationof each country by the number of business schools. 

On Eurostat's website I found the real GDPgrowth rate of each European country. Then I related the number of business schools per contry to their respective real GDP growth rates by fitting a linear regression model. In the below figure you'll see the regression line (in red), the different data points, the number of business schools per country (scaled) on the X-axis and the GDP growth rates (scaled) on the Y-axis.

 

The slope of the regression line is slightly negative (-6.775e-05), which would mean the less business schools a country has the lower its GDP growth rates will be. Nevertheless the analys also yields a P-Value of 0.46 for the slope – which means that it is statistaclly not significant.

So what does this mean? Well, nobody can say that business schools have any impact on economic growth. In any case it's marginal and less important than the impact of other higher education institutions (like real universities).

Last but not least: Spain, Portugal and Cyprus are among the countries with the highest business schools per inhabitants ratio, whereas Germany and Luxembourg have really low ratios. This is why Spain, Portugal and Cyprus will have to finance Germany's bail-out.... oh, wait...