Knowledge at Wharton

For the third time in the past few months the Federal Reserve’s Open Market Committee has chosen to cut short-term interest rates by a quarter percent or 25 basis points. The Fed cut its main short-term rate target to 4.25% and the ”discount rate” charged on direct Fed loans to commercial banks to 4.75%. In its statement justifying the decision the Fed noted ”Incoming information suggests that economic growth is slowing reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover strains in financial markets have increased in recent weeks. Today’s action combined with the policy actions taken earlier should help promote moderate growth over time.” Will the Fed’s decision help promote ”moderate growth?” Knowledge at Wharton asked Jeremy Siegel a professor of finance at Wharton and author of The Future for Investors to analyze the Fed’s decision and its impact on the markets.

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Fansumers viral videos and social computing -- these are just some of the many buzzwords pinging around the marketing world today. While making sense of them isn’t easy the concept behind them is clear: Online technologies allow customers to communicate in new ways with one another and companies must decide whether to ignore co-opt or dive into these new waters of interactivity. ”Consumers want to feel they are being heard and they love having an impact on the future development of products ” says one Wharton professor. ”To the extent that they can air grievances or understand the company’s position that can be beneficial for the company itself.”

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On November 6 Facebook outlined a strategy to integrate more targeted advertising into its popular social networking website. Facebook CEO Mark Zuckerberg saw the new initiative as an opportunity for users to refer products to each other and allow friends to share information as they shopped online and visited other websites. The system called Beacon was also intended to lead to more relevant -- and profitable -- advertising through precise targeting based on a user’s buying habits social circle and geography. But on December 5 after receiving numerous complaints Zuckerberg issued an apology and changed the way Beacon operates. The whole incident according to Wharton experts raises questions about privacy marketing tactics and what consumers can expect in the future.

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The event was a contest designed to highlight the ways that advanced marketing science can improve the bottom line. The place was the recent Practice and Impact of Marketing Science 2007 conference held at Wharton. And the winner was the National Academies Press (NAP) the book-publishing arm of the National Academy of Sciences which presented information on how marketing research had helped it realize a common but often elusive goal -- reaching as many customers as possible at the highest attainable price.

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A generation ago the only financial goal for a superstar African-American athlete at the peak of his career -- beyond a large contract -- was to nab a lucrative endorsement deal with a big sneaker company like Nike or a national brand such as McDonald’s. The idea was to earn several million extra dollars before his skills began to wane. Those short-term goals remain but today many in the National Basketball Association or the National Football League want something more substantial -- like a long-term piece of the action. A panel at the recent 34th Annual Whitney M. Young Jr. Memorial Conference looked at the business deals and humanitarian activities that today’s stars are conducting well after their days on the playing field are over.

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The Abu Dhabi government is buying a 4.9% stake in Citigroup for $7.5 billion. UBS is selling a 10.8% share to the government of Singapore and an unnamed Middle Eastern investor for $11.5 billion. Two Middle Eastern government funds now own a third of the London Stock Exchange. Governments through investment pools known as sovereign wealth funds have put tens of billions of dollars into Western financial firms this year. But is foreign ownership -- or more precisely foreign government ownership -- really a good thing? Many experts think this mushrooming trend bears watching especially for any sign that these funds are evolving from pure investment vehicles into tools for exerting political pressure on the ”target” countries.

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Fire your bad customers. That piece of advice has become widely accepted in recent years as companies have sought to manage their relationships with customers in more sophisticated ways. The rationale is clear-cut: Low-value customers end up costing more money than they provide. So why not jettison them and focus your customer-relationship efforts on more profitable individuals? Or as an alternative why not try to increase the worth of the low-value customers to your firm? Not so fast suggests a new study by two Wharton marketing professors -- Jagmohan Raju and Z. John Zhang -- which concludes that firing low-value customers actually decreases firm profits and that trying to increase the value of these customers may be counterproductive.

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Anyone who has popped open a bottle of wine will agree with George Taber that it is one of the few sounds in the world that brings true joy to the listener. But if the opponents of cork have their way that sound might disappear as Taber a veteran business journalist and author explains in his new book To Cork or Not to Cork: Tradition Romance Science and the Battle for the Wine Bottle (Scribner). As Taber tells it although cork has been used to seal virtually every bottle of wine for nearly three centuries that dominance is now under attack by other forms of closure including screw caps plastic seals and glass stoppers. Taber talks with Knowledge at Wharton about the battle and his book.

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McDonald’s operates the biggest restaurant chain in France. The company’s franchisees are French as are their employees and they also source their supplies from France. And yet most people in that country regard McDonald’s as an American firm that is undermining the French way of life. That is a good example of how the question of corporate identity has become complex and confused today because of globalization according to Hamid Bouchikhi professor of management and entrepreneurship at ESSEC and Wharton management professor John Kimberly. The two are authors of a new book titled The Soul of the Corporation: How to Manage the Identity of Your Company (Wharton School Publishing). How can a company cut through this confusion and use the notion of identity as a source of competitive advantage? Kimberly answers that question and others in an interview with Knowledge at Wharton.

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Almost every day a new twist seems to appear in the subprime crisis drama. This week the investment arm of the government of Abu Dhabi announced an infusion of $7.5 billion to acquire a 4.9% stake in Citigroup which has been slammed by enormous losses in the credit market. The announcement came on the heels of a report from Bank of America that the subprime mess is about to get messier as interest rates ”reset” -- or rise -- on more than $360 billion worth of adjustable rate subprime mortgages. Has the crisis run its course? Knowledge at Wharton asked that question and several more to Richard Herring a Wharton finance professor and co-director of the Wharton Financial Institutions Center.

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