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Views from the Prairie

April 11

Inflation is back

Everybody but the Federal Reserve recognizes that we have inflation right now. With the run up in gas prices, people are cutting back and we might be headed into that infamous "double dip recession".

The problem is that by cutting back, we might not get lower gas prices. The demand from the rest of the world and the over stimulation of the money supply means that we may be headed into that situation where we have both a recession and inflation at the same time. Back in the 1970's, we called that "stagflation".

If we look back at that time, there are a couple of things to note about the business situation then. One is that in that period many companies changed how they were doing business. As in any major economic shift, many of the companies that were leading in the prior situation were unable to make the changes and fell behind. Those that thrived then were those that invested in new technologies and new business strategies.

What led us out of the last period of "stagflation" was the wide scale adoption of new technology (and the massive federal borrow and spend under President Reagan). Technology is one cure for inflation as most technology is a way to cut the costs of doing business. Economists are saying that we need significant productivity improvements in order to get our country moving well again.

In wide spread adoption of new technology, we also adopt new ways of doing business. How many people remember how business was done back then? Do you remember doing business by mail or waiting three weeks for the secretary to write up, copy, and mail the minutes of a meeting? During the 1980s, innovative companies were starting to use electronic mail as a competitive edge. Later, by wide scale adoption of email, we transformed how business is done. A similar thing will happen in this cycle.

Since the way out is by a wide scale change in American business, that means that our economic troubles will be with us for some time. "Hunkering down" to try to wait it out is not going to work. Instead, the goal has to be to constantly seek out ways to improve the business. That means looking to find the ways to change how the business is done and even change which markets to address. Constant innovation is the way to find what will work in this new environment.

Which technology and which changes to how we do business can never be predicted. Instead, we move forward by experimentation and making investments in many different technologies. The challenge is that we often need to invest in technologies that destroy our current ways of doing business - ways that currently work well. Often, we have to risk our current business in order to have a future.

Such change can be challenging, but the risks of not making changes often have higher costs.

Birds, Reptiles, and Mammals

Business and marketing strategies can be compared to animal strategies for both reproduction and food gathering. Back in 2006, Jonathan Byrnes compared the reproductive strategies of reptiles and mammals for the Harvard Business Review.

The main difference between the two is how closely one gets tied to the chosen vendors. In a reptilian strategy, the vendors are replaceable. The goal is to have as many as possible so that they can be replaced at moments notice. Snakes can be an example of this. When one female comes out of the ground, she can be swarmed by hundreds of males. It almost becomes a matter of chance as to which male wins.

In that world, our relationship with our customers is very fragile and we need to constantly trying to get new customers.

In a mammalian strategy, the relationships are far fewer and we invest far more into each one. Yes, we all know about guys who "love 'em and leave 'em", but the majority of relationships are dedicated for a while. Think of the effort that deer put into building the antler rack, building the harem, and defending them against interlopers. Many companies put similar efforts into building relationships with their customers and it pays off for them. This strategy is a lot higher cost per customer, but the benefits are greater.

A third way has to be looking at the birds. Birds market by claiming a territory, developing flashy ornaments, and performing spectacular songs, dances, and rituals to get the mate. The result is a mate that might or might not be promiscuous. This would fit with companies that spend a lot on advertising but might not have a deep relationship with the customer.

Shopping Cart Flaws

An Indiana researcher has been able to get items for free by finding bugs in the most commonly used third party shopping cart software. Some of the bugs were easy to identify and Amazon and others have fixed them. Other bugs were not so easy to identify and fix.


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