Observations, Prediction

COVID-19 and the Election

pollywannamath

Coronavirus could cost Trump the election, Goldman Sachs warns. Goldman’s argument is that widespread Coronavirus will depress U.S growth and voters will look for the Democratic party to improve economic outlook in a recession:

“If the coronavirus epidemic materially affects US economic growth it may increase the likelihood of Democratic victory in the 2020 election,” Goldman Sachs analysts led by Ben Snider wrote in a report published Wednesday night.

Shockingly Goldman is looking at Coronavirus as an economic shock, rather than a social one, and is coming to the wrong conclusion. Broadly, I see two scenarios where Coronavirus actually helps Trump win re-election in November:

  • COVID-19 ran its course, no longer poses a health concern, and the markets are recovering.
  • COVID-19 caused school closures, healthcare shortages, panic and death in the elderly population, and the country has not yet recovered from the social and humanitarian tolls of the virus.

In the first scenario, Trump will point to his leadership as the singular reason that the United States recovered and will craft a narrative that the democrats would have lengthened a recession and ruined the healthcare system. He will contrast the health outcomes of United States with China, or Iran, and claim that the “socialist” Democrats would have turned the country into the modern-day Soviet Union. I predict that his messaging will be effective enough to cement support from the elderly, and will pick up moderate independents who are wary of the Democrats leftward trajectory.

The second scenario will play out politically like a war or a natural disaster. In this scenario, Trump’s right-wing ideas will spike in popularity and Americans will look for  consistency in political office. It is worth noting that no sitting president has lost re-election during wartime. Trump will point to his warnings and actions against China, and his proposed travel bans, to claim that he was prescient on the risks of outside actors. Trump will play on the fears of at-risk or unwell Americans, and cast the Democrats as un-American.

Does that mean that there are no scenarios that help the Democrats? I think there is a third, relatively likely scenario:

  • COVID-19 spreads through the US and lingers without causing hysteria. Trump’s administration mismanages the outbreak and independents reasonably believe that a Democratic administration would have been better suited to handle the outbreak.

In the third scenario, it does not matter if the virus was actually mismanaged or if the Democrats could have done a better job. What matters is that independents and moderate Republicans believe that Trump mishandled the situation (his Twitter makes that somewhat likely.

COVID/Trump Timeline for further enjoyment.

Observations, Prediction

The Sick Man of the West?

pollywannamath

The Ottoman Empire’s best days were behind it as World War I broke out in Europe. It remained largely agrarian while Europe mechanized. It lost critical territories through the 1800s. Political thinkers through the 19th century predicted the Ottoman demise. Financially the country was in ruin. By 1873, it could only meet half of its annual debt obligation. Even after a 1908 reform, the military of the Ottoman empire lagged behind its more modern European counterparts, and relied heavily on arms suppliers from other countries (mostly Germany).

The Ottoman decline is not obvious only in retrospect. Ostensibly, Czar Nicholas I described the Ottoman empire as “a sick man” as early as 1853. Cartoonists from the mid-19th century through the end of WWI had a field day with the Ottoman Empire:

. National representations of the Great Powers of Europe, “heal” a subdued Crete, dressed in Turkish garb the ruling power on the island at the time, in the aftermath of the Cretan Uprising in 1898.
Political cartoon referencing French aid to the Church and Ottoman Empire ca. 1860.
1915 satirical publication remarking on the end of the Ottoman Empire.

If a global war were to strike today, would the US be the “sick man”? The US has not proven particularly successful in recent military engagements (even if the cause is not due to limitations in military might). US national debt continues to skyrocket. The US government seems bloated, wayward, and without executive direction.

Certainly though, the US has advantages over the Ottoman empire. The US military is without dispute the most well equipped in the world and in a total war scenario is likely to fare better than most countries globally. But what if the next crisis, the one that exposes the sick man is not war?

If the crisis is humanitarian, climate change, pandemic, or technological, is the United States better off than the Ottoman Empire was at the onset of WWI? I think that is a harder question to answer. The US has been slow to enact policy change, even when the majority of its citizens desire the change. On a global stage US “soft power” appears to be waning, although we may find that US corporations had more “soft power” than any US governmental entity for a long time. With the current level of polarization, distrust in government, and special interest influence, will the US be able to keep up with the thought leaders in the next crisis? Or will we see the comics above–with the US as the sick man of the West?

*Author’s note: A comparison between the Ottoman Empire during WWI and the US will never be accurate. I don’t mean to imply that the US will carry out genocide in its decline, nor do I want to minimize the Armenian genocide by not referencing it in this post. I recommend that all readers familiarize themselves with that terrible period of time.

Business, Innovation, Observations

Has the internet destroyed brand loyalty?

pollywannamath

Recently, I was fortunate to have the opportunity to learn a little about  brand loyalty for my job. The results are depressing. Most articles that consider Brand Loyalty forecast its its death. Consumers are increasingly willing to consider a new product or brand, in favor of sticking with a tried-or-true solution. Prior to the internet age, when information was relatively hard to come by, daily items cost more of our income, and brands had regional footprints, brand loyalty made sense. The risks associated with a product change were relatively high.

The internet brought extreme price competition, product availability, and increased information, to the average buyer. A purchaser in Wisconsin can now compare 250 retailers for glass cleaner based on price, average review, or active ingredient without leaving her house. It is now riskier for her to blindly purchase the brand her father used, especially if it is the more expensive option, than to purchase a well-reviewed, cheaper option. Consumers rejoice, brands despair.

Obviously then the answer to the title question is yes, right? Don’t forget Betteridge’s law. I find it more likely that loyalty has shifted to a new entity, rather than decreasing in an absolute fashion. Building on Ben Thompson’s work on Aggregation Theory, I posit that brand loyalty shifted from individual producers to retail aggregators. Aggregation theory focuses on how consumer technology companies that aggregate modularized suppliers — which they often don’t pay for — to consumers/users with whom they have an exclusive relationship at scale changed the profit landscape of retail competition globally.

One lesser explored impact, of a world where aggregators reign supreme, is how consumer trust and loyalty changes with the market shift toward aggregators. In an aggregator-driven market, consumer trust and experience shifts from the product to the marketplace entire. Brand loyalty may shift from the product to the aggregator as well. Consumers frequently choose to buy a more expensive option on Amazon over a cheaper price on eBay due to the differentiated perceived consumer and brand experience. Consumers are loyal to Amazon over eBay, even when the reviews on eBay are more honest and recent improvements in the return policy, and shipping practices bring the purchase process into line with Amazon. I google items using Chrome, I don’t Bing items using Edge; as a consequence Google recommends many of the items I buy. I am loyal to Google, even when its competitors offer better browsers and may recommend better items for purchase. Thompson argues that this loyalty and the market dominance it brings may cement the current tech giants as the preeminent companies of this century.

How does this impact traditional retailers? Brick-and-mortar retail brands that understand the aggregator economy and cultivate a strong brand image, independent of a particular product, are set to succeed in this new economy. After facing revenue loss in 2016, Target outlined a new retail strategy focused on reimagining their stores and building better employee and brand experiences. That strategy is working. The company is thriving in a market destroyed by digital competition.

The portfolio of Urban Outfitters is another successful example of building a brick-and mortar-store that leverages aggregator strategy. The stores within Urban Outfitters umbrella (Urban, Anthropologie, Free People, etc.) each cultivate a list of in-house “brands” making each store resemble a retailer of highly curated clothing from different suppliers. The strategy seems to have insulated Urban Outfitters from online competition; Urban has a strong digital presence and differentiated in-store experience. If Urban appeared to only supply a single house brand, its revenue curve may more closely resemble Gap’s, a primary competitor. The key differentiator of Urban Outfitters, is the strength of store brand perception; consumers are not loyal to any of the individual “brands” that each Urban Outfitters store has.

Traditional retail brick-and-mortar shops were left behind by more than just a shift to cheaper options, and the convenience of online shopping. They missed the boat on building a perception of a differentiated brand, opposed to a brand housing differentiated products (à la Nordstrom). To succeed in a highly competitive industry within the aggregator economy is to build a perception that your store, online or brick-and-mortar, will compile the best options and provide an experience with consumer choice.

In future research, I plan to identify how companies within traditional industries maintain brand loyalty in the internet age. These strategies center around extreme urgency to buy, creating an ecosystem, and creating barriers to switch through incentives.

Prediction, Technology

When will we drive flying cars?

pollywannamath

Since before the Jetsons, we have dreamed of owning a flying car. The idea of leaving your house in the sky and flying to your destination without the humdrum of ground traffic is exciting. We already have helicopters, private drones, and airplanes, why not flying cars too?

In fact, there is a flying car on sale today (well….preorder). It isn’t quite the Jetsons, but it confirms the base technology is possible and not too far away. So when will the average person drive a flying car and will it bring the freedom we hope?

I’m not sure flying cars will ever be in our future. And if flying cars see widespread adoption, I don’t think it will offer a superior product to ground transit. I have a few reasons for my thinking:

  1. There aren’t many helicopter pilots. An ultralight helicopter can cost as little as $20,000 and the range would suffice for daily commutes. Ultralight helicopters are as close as we have to the cars of the Jetsons and are possible for wealthy individuals today. The regulatory limitations of helicopters are much lower than that of airplanes. Getting a private helicopter license is expensive, but can happen in a year. There are a number of reasons more people don’t take helicopters to work including safety concerns, noise, licensure, and a lack of flexibility, and it isn’t clear that a driving car will fix them.
  2. Regulatory requirements. It’s clear that even if flying cars exist, and are capable of autonomous/semiautonomous flight, there will be regulatory barriers of entry. People that own them will need to be licensed. Traffic will be regulated. The end product between self-driving  ground cars and self-driving flying cars will not be sufficiently different to justify the cost of licensure for widespread adoption of the flying product. If neither are self-driving, flying will be too hard for the general population.
  3. NIMBY-ism. Why will skys be congested? Because people will not want flying vehicles over their property. Property lines will extend 5,000-10,000 ft above the ground and cities will not allow flying except for specified flyways. Flying will lose its luster quickly when it has the same traffic, speed, noise, and route limitations of the ground.