Is the euro zone safe from defaults?

From: Blog

Although Greece only represents 2% of the euro zone economy, in October 2010 experts were seriously concerned that an uncontrolled Greek debt default would cause contagion risk for other nations and for the world economy at large. Since then, billions of euros have been poured into the Greek economy and the threat has lessened. In fact, in the past month both Portugal and Greece produced oversubscribed debt issues

With this good news in mind, the experts of the IGM Forum were recently asked whether they agree that it is unlikely that any euro area countries will default in the foreseeable future. And while we would all like to relax and not worry about the future of the global economy, the experts cannot all agree that we should.
Half of the panelists do agree that such a default is unlikely. However, they still advised caution with their agree votes. Pete Klenow of Stanford said, "Sovereign bond yields and credit default spreads imply that default is a nontrivial possibility, but the more likely outcome is no default." Similarly, Larry Samuelson of Yale said, "Default looks less likely, but structural problems in the euro zone remain, and much has yet to transpire before default is truly unlikely."
A healthy fifth of the panel is uncertain about the possibility of default and had little to say about it, clearly indicating that their uncertainty arose for obvious reasons. William Nordhaus of Yale was the only uncertain voter who left a note, in which he wrote that the possibility of default "is reduced from 2 to 3 years ago, but [it is] still a fragile system."
Nearly a quarter of the panelists disagree with the notion that default is unlikely, and made their views clear with their votes. Abhijit Banerjee of MIT observed that, "These are small countries. It is not too likely, but it is not impossible, that a bigger country will hit some political shocks. Then all bets are off." Markus Brunnermeier of Princeton agreed with Banerjee, and wrote, "Uncertainties in emerging markets helped European bond issuances. [But] many unforeseen events can easily worsen the current situation." 
So where do all of these opinions leave the average investor? Perhaps a bit more optimistic, but still cautious. Although half of the panel thinks a default is unlikely, not a single one was completely optimistic, which means we regular folks should think long and hard before we decide where to put our nest eggs.
—Robin Mordfin 


How companies can cash in on social media

From: Blog

With Twitter’s recent announcement of their intentions of going public, the focus is back on how social networking sites can make money. As Rod Tidwell (Cuba Gooding’s Oscar-winning performance in Jerry Maguire) puts it so eloquently, the mantra is one of: “Show me the money!”

At the same time, other companies—packaged goods manufacturers, service companies, and business-to-business marketers among others are looking for ways to leverage the various social media platforms in order to provide greater value to their customers or clients.

In this post, I will describe the model used by Punchh—a Bay Area startup—to illustrate how firms can leverage customers’ social networks. By using mobile technology in local contexts, they obtain measurable returns on rewards programs. The company was founded and is being run by a number of former Chicago Booth graduates (see for more details) and provides a mobile CRM platform for restaurants and restaurant chains.

In an earlier post about Netflix, I discussed the importance of the customer lifetime value (CLV) metric for service businesses. Repeat business from loyal customers enhances their lifetime value. Firms need to engender loyalty and generate repeat business. At the same time, visiting restaurants is also a social activity and first time visits are often triggered by referrals from one’s friends. New customer acquisition can be driven by referrals from current customers to their friends in their social network in the local market area of the restaurant.

This is where Punchh comes in – it sets up a loyalty rewards program for existing customers which piggybacks on these customers’ social networks to reach potential customers. In the process it helps to not only acquire new customers but also strengthens existing customer relationships by providing additional rewards for every new customer acquired via referral using the network.

Specifically, the system works as follows. Say a new customer walks into a restaurant on the Punchh system. Point-of-sale materials direct the customer to join the restaurant’s rewards program by downloading an app. The app allows the customer to participate in the rewards program, and earn and redeem rewards for making a purchase, based on either visits or spend.

The program brings conventional paper based punch cards to the era of mobile and social media savvy customers. This builds customer retention and loyalty (for further details see the CLV formula in my Netflix post—retention is reflected in term “R” in that formula). A scanned receipt triggers a punch every time the customer visits the chain, and allows the customer to share opinions about the restaurant with his or her social network.

The app also asks permission to access the customer’s friend network, which provides the application with the names of the people in the existing customers’ networks. If one of the friends in the network also downloads the chain’s app and completes a transaction and punch at the chain, the app (using the network information previously obtained) queries this new customer whether he or she was visiting the restaurant based on a referral from the original customer. An affirmative answer then triggers an additional punch for the original customer to reward him or her for the referral.

Accounting for this “referral value” of existing customers helps to further enhance the customer’s lifetime value to the restaurant chain.

A key capability of the Punchh program is to go beyond traditional loyalty programs— which primarily reward the customer for his or her individual visits and spend—to reward “social” behaviors such as referrals. Plus, Punchh ensures that all outcomes are clearly measurable and in most cases attributable to the rewards program that the chain is investing in. This enhances its value to both marketers and CFOs who are interested in quantifying the return on investment of such marketing initiatives.

There are many different ways in which companies are leveraging social networks to provide more value to their customers. As networks grow, firms can benefit from enhancing both the customer base and the lifetime values of their existing customers.

As Jerry Maguire (played by Tom Cruise in the movie of the same name) notes “So this is the world, and there are almost six billion people on it. When I was a kid, there were three. It’s hard to keep up.” For marketers, being able to better understand and leverage the social networks of their customers implies that they can benefit if the world has 3 or if it has 6 billion.
—Pradeep Chintagunta, the Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing 

This article originally appeared on the Kilts Center Faculty Blog
Cat:Business, Sub:Marketing,