consumer behavior | Well Heeled Blog

Lessons From Real Estate Intervention’s Tough Love for Homeowners

Written by WellHeeled on February 1, 2010 · 14 Comments

Ever since I discovered that I can watch HGTV shows for free on hulu.com, I’ve been a big fan of Real Estate Intervention. On this show, real estate agent Mike Aubrey has the unenviable job of telling homeowners that their house is not worth what they thought it was worth.

But a tough market calls for tough love. Real Estate Intervention gives prospective buyers very good information on what to do and what not to do when it comes to buying, renovating, and selling a home. Here are some lessons I’ll be taking from Mike‘s advice on the show when I purchase my first home (not for a while!):

Beware of unconventional financing structures. So many homeowners have taken out 100% financing, so that when the real estate downturn occurred they have no equity to ride out the storm. One lady took out a negative amortization loan in which her monthly payments don’t cover her interest, so that every month a little bit of principal is added to the loan. Instead of paying down the loan, or only paying interest, she is actually INCREASING her loan amount as time goes on. *blinks*

The market doesn’t care how much you paid for the house or how much you need to sell it for to break even. Buyers can’t price their homes based on what they need; worth is a measure of what the market will bear. Sellers aren’t stupid – they won’t buy a home for $300K if the place next door is selling for $240K and the size and features are comparable.

What a majority of buyers want are very formulaic: neutral walls, hardwood floors, updated kitchens with stainless steel appliances, double vanities in master baths, adequate closet space. If you are renovating and you want to make back part of your renovation dollars when you sell the house, invest in kitchens and bathrooms, and remember not to personalize too much! Bright blue tile walls in the shower might be an attractive look to you, but most buyers want neutral colors.

Appropriate pricing is important. In a declining real estate market, sellers need to set the market by listing the house at the correct price from the get-go, not chase the market by setting the price too high, then let the home languish on the market for months, then do periodic price cuts.

I’d suggest current and future home buyers to watch Real Estate Intervention for a good dose of perspective. Most of the homes they profile are concentrated in the D.C., Virginia, Maryland area. I’d love it if the show broadened it’s geographic reach and came to California!

How Much Is That Wine In The Restaurant?

Written by WellHeeled on January 11, 2010 · 35 Comments

I almost never order alcohol in restaurants because I have to drive home afterward (and cabs are expensive). That is a good thing, because I recently learned that how high markups can be: a bottle is marked up 300% in restaurants over the wholesale price, or 200% over the retail price (see WSJ article on pricing formula).

Cheaper vintages tend to be marked up at a higher percentage (300% – 400% of wholesale) compared to more expensive ones (150%-200% of wholesale).

That means a $20 bottle you bought at a grocery store would cost you $50 at that bistro down the street. WOW! I was always under the impression that wine markups were high, but I had no idea how high.

Also, as can be imagined, more expensive restaurants may have higher markups.

In most cases, the fancier the restaurant, the higher the markup. A top-tier chef, a team of sommeliers, a large wine cellar and expensive stemware are all built into the wine price. Because pricier restaurants typically have fewer tables and less turnover, they need to make profits on fewer bottles sold.

Buying wine by the glass is even more costly. Restaurants tend to charge the wholesale bottle price for a glass – so that they make back their investment with the first glass (see this ChowHound thread about wine markups) and protect against loss if any bottles have wasted wine.

WSJ recommends that diners avoid ordering by the glass if possible – for reasons of taste as well as value.

If the wine in an opened bottle doesn’t sell in a few days, for example, best practice is to pour out the spoiled wine — but whether that happens or not is a matter of conjecture. For diners looking to maximize the value per ounce, ordering a pricier bottle may be a better choice than ordering by the glass.

A few nights ago I went out to a cheap burger & fries place where the entrees top out at $10 or $11. A friend ordered a couple glasses of red. The restaurant didn’t even say what type of red it is. She forgot to check the price, but assumed that it was $5 or $6. Turns out it was $9!! Two glasses added up to almost $20. Talk about high markups!

I’m trying to become more educated on wine… and I think I shall begin with my education at home, where I can drink excellent Pinot Noirs & Chardonnays purchased at Costco for $10 or $15. These bottles, according to formulas on markups, may cost $30 or $40 at a restaurant.

What type of wines do you order at restaurants? Do you ever buy wine by the glass?

image source: weblogs.cltv.com

Pure Altruism – Does it Exist?

Written by WellHeeled on December 14, 2009 · 18 Comments

Every time the holidays come around, feel-good human-interest stories surface. This is a time to give to others, help those in need, and realize that the world is not as cutthroat or as competitive as we may believe.

But is it true? Can people be purely altruistic?

The authors of Superfreakonomics (the followup to the best-seller Freakonomics), says no. Most giving is what economists call impure altruism or warm glow altruism.

You give not only because you want to help but because it makes you look good, or feel good, or perhaps feel less bad.

For example, a donor who gives $10 million to her alma mater may want to help her school, but she also wants her name atop a brand new building. Donors to the popular micro-finance site Kiva do so in large part because lending $10 or $50 or $100 makes them feel better. (Also, microlending is a very “trendy” area of philantrophy right now. Bill Clinton is a big fan of Kiva, and the founder of Grameen bank recently won the Nobel Peace Prize).

I may give $2 to a homeless person on the street, but that’s because I feel guilty and uncomfortable that he is walking in the rain while I’m warm in my car. U.S. citizens might give a lot to charities, but many people (especially the wealthy who can benefit to a greater degree) do so partly because of the tax advantages.

Beyond (or even aside from) the desire to help, lies a host of other incentives that makes giving in one instance more worthwhile to us than not giving.

No pure altruism there, no sirree.

So, the authors posit - “Are people innately altruistic?” is the wrong question to ask.

Because

People aren’t “good” or “bad”. People are people, and they respond to incentives. They can nearly always be manipulated – for good or ill – if only you find the right levers.

The authors look to kidney donations as an example. Only 16,000 kidney transplants are performed each year, but there are currently 80,000 people waiting for the organ. Many people have clearly decided that the incentives to donate a kidney are not strong enough to make up for the risks or inconvenience of donation.

When I examine my own behaviors of generosity, I have to agree that my giving are of the warm-glow types. When I gave my parents a stay at Las Vegas’s Mandalay Bay for last year’s Christmas, it wasn’t for purely altruistic reason. I wanted to feel like I am being a good daughter and make my mom proud.

The part that really makes me smile? Is that I know my mom will tell her relatives and friends about this, and that in addition to all the enjoyment she will get out of her luxury hotel, she will also get to feel like she raised a good daughter.

And that? Is money well spent.

Even the kind comments I received on that post was “reward” (i.e. positive incentive) towards that type of behavior.

So, what do you think? Are people innately altruistic? Or do we just respond to a series of incentives, social norms, and references?

image source: thejosevilson.com

Restaurant Cuisine Hierarchy: Why Are There More Expensive French Restaurants Than Expensive Chinese Restaurants?

Written by WellHeeled on November 17, 2009 · 12 Comments

Have you noticed that the nicest, most expensive restaurants usually offer French / Continental cuisine, whereas Asian restaurants (Indian, Chinese, Vietnamese, etc.) and Mexican restaurants are usually at a much lower price point?

Of course, that statement is not an absolute – but on the whole, the most expensive restaurants (think those with Michelin stars, $300+ meals, and extensive wine / alcohol lists) are French or continental restaurants. Fast food places, meanwhile, are far more likely offer Chinese, Indian, or Mexican fare. Even Asian restaurants that are nicer and more expensive are almost uniformly “fusion” restaurants (with the exception of pricey Japanese sushi houses).

As a big lover of almost all cuisines, I’ve wondered about this disparity for a long time. I thought about titling this post Disparity in Restaurant Prices by Different Ethnic / Cultural Cuisines, but wow, a mouthful, eh?

For ease of writing purposes, I’ve decided to make French restaurants and Chinese restaurants my two subjects of study.

Non-Scientific Survey of # of High-Class French Restaurants vs. Chinese Restaurants

If I search for “French restaurants” on Yelp in San Francisco and focus only on the $$$$ price category, I come up with 8 results on the first page. If I search for “Chinese restaurants” with the same price designation, however, there is only one result - Jai Yun.

A similar search for New York City – the dining capital of the U.S. – resulted in 5 Chinese restaurants categorized as $$$$ on Yelp. There are, however, 10 results for French restaurants on the first page alone, and many more restaurants extending beyond the first page.

Why Are There More Expensive French Restaurants Than Chinese Restaurants?

Can it be that French cuisine requires more skill / expensive ingredients than, say, Chinese cuisine? I don’t know – perhaps, but I am hesitant to attribute only skill or ingredients to such a great disparity. Somehow, in the “restaurant hierarchy”, consumers (and I admit, myself included) have become accustomed to pay much more for a plate of beef bourguignon than a plate of stir-fried beef and broccoli.

A large part of this restaurant hierarchy comes down to branding and history. French and continental cuisine have been branded as an exquisite dining experience, whereas Chinese or Mexican food have been categorized as mostly “fast-food” – delicious, yes, but still “fast food”. A couple that want to celebrate their 20th anniversary goes to a 4-star French restaurant. A couple that is exhausted after work orders Chinese takeout from the corner cafe.

From a historical perspective, fine dining in America has traditionally belonged to French / continental cuisine. The best chefs at the best restaurants are frequently trained at French culinary institutes. Also, French cuisine is still more mainstream / less foreign than Chinese or Vietnamese cuisine might be to the general American public.

The market supports different cuisines at separate price points.

Self-Perpetuating Circle & Challenges of Rebranding

This phenomenon has become self-sustaining – as more French restaurants are usually acknowledged as “occasion” restaurants – the places you go to celebrate an engagement, wine and dine clients, or impress your parents, it becomes easier to find backing and the dining base needed to sustain a high-class French restaurant. It’s a circle that perpetuates itself.

People have come to expect different things from French restaurants (service, ambiance, exquisite meals) than Chinese or Mexican restaurants (fast service, low prices). In addition, there are such a proliferation of cheap, mom-and-pop Chinese / Mexican restaurants (especially in big cities with a large immigrant population) where you can get an entire lunch for $5. It’s even cheaper than McDonald’s!

The chef who wants to start a 4-star Chinese restaurant not only has to compete with (1) the French restaurants for patrons who would pay $100 for a meal for two, (2) he/she must also convince the patrons of the cheaper Chinese restaurants that it IS worth it to pay $25 for beef & broccoli (which at his shop may be made with organic grass-fed beef) instead of $8 for the same dish a few blocks over, and (3) change the mentality of future patrons that Chinese food is only for take-out or casual sit-down dining.

The chef who wants to open and make a profit from a 4-star, $30-per-entree Chinese or Vietnamese or Mexican restaurant must redefine an entire consumer mindset. They must rebrand an ethnic cuisine. Rebranding is hard work – and it’s no wonder that few chefs have successfully accomplished such a task.

What do you think? I love food and I love consumer behavior, so I find this a fascinating topic. Please share & discuss!

Business Insurance Experts Premierline Direct

How To Practice Safe and Responsible Credit Card Use

Written by WellHeeled on October 30, 2009 · 9 Comments

Wait, you mean you never had a credit card education class in school? Okay, me neither. The quality of education these days!

safe credit card use How To Practice Safe and Responsible Credit Card Use

But there’s no reason that high schools or colleges shouldn’t offer a class like this. After all, credit card education isn’t an awkward topic like the other type of ed we had in our adolescent years, so there’s no reason to be bashful on talking about the practice of safe credit card use.

Why you should practice safe credit card use:

Credit cards are a tool that can make your financial life (and by extension, your non-financial life) better or worse, depending on your actions.

If you practice responsible and safe credit card use, you increase your chances of having a healthy and productive relationship with your credit cards, credit report, personal budget, and all instances in which you will have to apply for loans (mortgage, car loan, private education loans, etc.). If you don’t practice safe credit card use, well, then you will catch a nasty case of CTD – credit transmitted disease. Symptoms might include feelings of fatigue (I’m so tired of all these bills), anger (why is the company charging me a 29% APR?!), and in the worst case, bankruptcy, which can do a real number on your credit profile.

How to practice safe and responsible credit card use:

1. Recognize that credit cards are a method of payment (much like cash, checks, electronic transfers, etc.), not a source of funds for payment. You can read more about this philosophy of credit use at my BlogHer post.

2. Pay off your balance in full every month (the safest way!), or at least always be sure to pay the minimum payment. This will help you avoid the hefty late fees and finance charges. However, if you are a good customer and you run into these charges, many credit card companies will waive them for you.

3. Keep track of your spending – it doesn’t have to be down to the dollars and cents, but have an approximate guideline of how much you can put on your credit card. This will also help you from coming too close to your credit limit.

4. Keep your friends close, and your credit cards closer. Make sure you always know exactly where your credit cards are. This way, if a card is lost or stolen, you will notice and can report the fraud quickly.

5. Use virtual account numbers when you shop online, especially at a site that you’re unfamiliar with. Some cards offer virtual account numbers – which are numbers generated specifically for a short period of time (say, a few days). This way, the online merchant does not have access to your real credit card number if a hacker breaks in the system or if there are other security breaches. This feature helps protect you in the Wild Wild West of online credit use.

6. Limit your number of credit cards. Most experts recommend 2-4 credit cards. More credit cards means more cards, more credit limits, more due dates, to keep track of.

7. Don’t share your credit with just anyone. Remember, you worked hard to build and maintain a good credit history. Think long and hard before you become joint account holders / cosigners with someone else. If you become a joint account holder / cosigner, you might become 100% liable for the debt that is accumulated on that account if your partner turns out to be less than sterling credit user. Please do your own research, understand the consequences, and honestly evaluate if that person would be a good credit partner.

8. Last, but not least, enjoy your credit cards! Responsible credit card use can be a beautiful thing. I use my credit card rewards points to get Sephora gift cards. Perhaps you are an avid traveler and can get air miles on your card? Or you own a small business and receive cash back on your business account? The possibilities are out there – safe credit use help you avoid credit-related diseases and enjoy a happy, healthy relationship with your credit cards.

How Much Are You Willing To Pay For Handbags?

Written by WellHeeled on October 28, 2009 · 21 Comments

prices and bags1 1024x307 How Much Are You Willing To Pay For Handbags?

I love my new leather satchel that I’ve purchased a month ago. I can really tell a difference in quality in that bag’s material and construction versus the faux leather purses that I’ve bought in the past. Considering that those purses often cost $20-$40, I consider the extra cost money well spent.

But I am ALSO glad that I didn’t pay over $100 for my leather bag.

As I’ve used the bag 2x – 4x a week, I notice little scuff marks or scratches on the leather. I try to be careful, but wear and tear is bound to happen. If I had a really expensive bag (say, $500+), I would be scared to set it down!

Also, I believe that the higher you go up in the handbag scale (i.e. from a $20 Payless purse to $50 Nine West to a $500 Coach purse to a $1,500 Prada bag), the marginal improvement in quality decreases and the percentage of the incremental cost that goes to the “brand” increases.

For completely illustrative purposes, this is how I think of it: the $30 difference between Nine West and Payless might be allocated 80% quality ($24) and 20% brand ($6), whereas the $1,000 between a $500 Coach bag and a $1,500 Prada might be allocated 40% quality ($400) and 60% brand ($600). The quality will still be better every “step” up in branding you go, but you will be paying a proportionally greater differential for the brand.

This is not to say that paying for brand is wrong or unwise. In fact, with a designer brand you are usually buying good design, superb construction, innovative styling, cache, a special purchasing experience (i.e. if you purchase the bag at Neiman Marcus instead of at a sample sale), recognition, etc. If those aspects are important to you and you can afford it, then more power to you! (And the economy thanks you).

I just don’t think I can take the psychological pressure of carrying around a bag that costs more than my rent. Which just goes to shows – I shouldn’t be owning such a bag. Right now, I think ~$200 / bag is my limit.

Investment advisers have counseled clients to see if their asset allocation pass the “sleep test” – I think material possessions should be viewed in the same way. If the thought of losing a $2,000 bag makes me break out in hives (or a $40,000 car whose every dent will be like a dagger to my heart), then owning these things probably won’t bring that much joy to my life. I’d worry too much!

Passports and Americans

Written by WellHeeled on October 26, 2009 · 13 Comments

I went on my first international flight when I was nine, so the little blue book has always been a part of my life. There were a few instances where I thought I had lost it – those were harrowing moments, indeed!

Dog Ate My Finances’ latest post got me interested because “only 10% of Americans have a passport” just seems really low to me. And I don’t always agree with what she says, but her posts can certainly be interesting (usually) and controversial (sometimes)!

I did some googling – while I can’t find any precise numbers, a January 2007 NY Times article indicated that according to the State Department, an estimated 27% of Americans carry a valid passport as of that date. Since that time, the government has implemented rules that require a passport to travel to Mexico, Canada, the Caribbean, and Bermuda, so I imagine the percentage of Americans with passports would have increased.

So what are some reasons that more Americans don’t have passports? I can think of a few that might be the reason:

1. the expense of international travel

2. America’s distance from other countries (which makes travel logistically and financially more challenging than, say, a British citizen traveling to another European country).

3. lack of interest in other countries (? – It’s easy to make fun of the stereotypical I’m-only-interested-in-myself American, but I don’t think this is case, at least not the primary reason)

4. the plethora of vacation destinations available within the country (America is huge, and one could argue that New York and Texas are as different as two different countries. )

5. short vacations (especially when compared to European countries) – 2-3 weeks of time off per year doesn’t leave a lot of time for traveling.

I really enjoy living in California, but I also want to live abroad in my life. In fact, when I was younger I thought it would be amazing if my kids would be expats and become one of those super-lingual genius babies who can become native speakers in 3-4 languages.

Apparently, there is now a Passport Book (what we traditionally think of as the passport) and a Passport Card (a single identification card used for travel by ports-of-entry to Canada, Mexico, Caribbean and Bermuda, but cannot be used for international air travel). Because my parents have always paid for passport expenses, I never realized how much this documentation cost.

The U.S. State Department publishes a fee schedule for passport costs. Adult renewals passport book cost $75. Considering that a passport is valid for 10 years, it’s certainly a more than fair price (though expedited services often cost much, much more).

Unfortunately, I haven’t been out of the country since Spring of 2007. I am working on an overseas business idea. Who knows, perhaps my passport will be getting a new sticker in a few months.

Paying On Your Honor

Written by WellHeeled on October 5, 2009 · 9 Comments

Last week I attended a dance class where students put money into (and took change out of) a glass jar at the front table. The table was unattended, so essentially the payment mechanism operated on an honor system. (Edit for clarification: the payment was a set amount – not a suggested donation).

On the one hand, it’s nice to see such a sense of trust and community among the people, and I highly doubt that anyone will take advantage of the situation. On the other hand, even assuming that no one will cheat, I still felt uncomfortable that that money is just out there unguarded. With no one to do proper accounting!

I don’t quite know why I feel that way. Money left out in the open seems almost too strange to me. Or have I become too jaded? Has anyone else encountered a similar situation (the honor system payment)? How did you feel?

Putting Your Passion on a Budget

Written by WellHeeled on September 29, 2009 · 21 Comments

When there’s a mismatch between what you love to do (passion) and what you can prudently do (budget), it’s difficult to limit your passion to your budget.

Since I have developed a slight case of Argentine tango fever, I’ve been taking 2-3 classes per week. The classes cost an average of $15, which means that if I go to class twice a week, I’d be out $120 a month. Ideally, however, I’d be attending class 3 times a week, or spending almost $200 a month.

That’s just one type of dance. Sometimes I need a break from the intensity of tango by jumping in the fun and sassy salsa, which also costs $15 per class. So add on one session of salsa to three Argentine tango classes a week, and suddenly, my “ideal” monthly dance budget has ballooned to ~$250 a month.

To be honest, I don’t particularly crave top brand names or fancy cars or cool new tech gadgets (okay, maybe except for the iPhone). My day-to-day guilty pleasures are food and books, which I’ve always found that I didn’t have to be too disciplined when it comes to spending money, because delicious food can be found for cheap (dim sum, tacos, etc. even nice restaurants have deals once in a while), and books are free at the library, or available for under $5 at used book sales or on Amazon.

But dance is completely different. It’s an activity that requires a consistent schedule. It’s difficult to not do something (or not to do as often as you’d like) you love because of budgetary restraints. Every week I can feel myself getting better – I’m still in the stage where every slight improvement yields a big marginal benefit, because I’m starting off so badly! The more classes I go to, the quicker my process. If I miss a class, I feel the back-sliding. And I want to get better because as fun as tango or salsa is right now, it will be so much more fun when I’m a better dancer.

In many ways, I suppose I’m fortunate. I could have fallen in love with skiing, or mountain climbing, or sailing, or horseback riding – hobbies which all cost far more than tango or salsa. So, it’s okay if I indulge in a few more classes a week, right?

Do you have an expensive hobby / passion? And how do you limit your hobby expenses?

iPhones and Peer Normative Behavior

Written by WellHeeled on September 27, 2009 · 16 Comments

iphone iPhones and Peer Normative Behavior

It’s no secret that iPhones (and the various ilk of smart phones) are popular tech gadgets. I tend not to be an early adapter of technology. When iPhones first came out in January 2007, I thought they were cool, but never felt a deep desire to buy one.

So I’ve made it through almost three years since iPhone’s debut (and watched scores of friends and acquaintances jump on the iPhone train), but now, I’ve been bitten by the iPhone bug. And I think I know why.

One of my good friend, “Ellen”, recently got an iPhone. But why would Ellen’s purchase affect me when I was so unaffected by the purchases of other peers?

A wholly unscientific examination of my thought process shows that Ellen is a greater influence because she 1. is down-to-earth, 2. is very good with her personal finances, 3. considers big purchases carefully before making the move, and 4. just got an iPhone.

In my mind, then, if the iPhone is deemed necessary and worth the money by someone as financially savvy and practical as Ellen, it must be necessary and worth the money. Ellen’s purchase just elevated iPhone from a “nice fun gadget” to a “necessary product” in my subconscious. Hence my sudden wanting for the iPhone.

The more I think about it, the more I’ve convinced myself that an iPhone (or a smart phone) is not a luxury but a necessity (which, of course, it is not. At least not in my present situation). It’s funny – a few years ago I would’ve never thought it vital to have internet access everywhere, but now I can think of a thousand reasons why it’s essential that I can check for directions or nearby restaurants or email out on the road.

Just like before the invention of the cell phone, people got along fine having answering machines and landlines, but after cell phones came along we can’t imagine how we ever lived without it. If I accidentally leave my cell phone at home while I’m out, I always worry about who might be trying to get in touch with me.

The more technology can do, the more we realize we need.

Figuring out the source of my sudden iPhone-fever doesn’t diminish it completely. But I’m resisting, for now. Perhaps in a year or two, when there are more carrier availability and the prices go down a little…

Price vs. Value: Are We Conditioned to Cheap Prices?

Written by WellHeeled on September 20, 2009 · 14 Comments

Magazines have long touted handbags and purses as an “investment” – a piece in your wardrobe that should be high-quality, classic, and long-lasting. I can never quite bring myself to call a depreciating asset an investment, but I’ve realized the cheap bags aren’t exactly the deal that I thought they were.

The average price of all my purses is probably around $20. But even though I always found cute and cheap bags, those in the sub-$50 range are usually not made to withstand frequent use. I have some great fabric bags that have lasted, but faux leather totes? Forget it! The lining is easily torn, the stitching falls apart at the seams, the faux leather cracks after a while. I begin to wonder how much a bargain a cheap bag really is if it falls apart in less than a year… then there’s the waste and the clutter.

So I went to a couple of off-price retailers and found a dark brown leather satchel by B. Markowsky at Marshalls. It had a beautifully rich color, supple leather, understated but interesting hardware, and just the right dimensions. In short, it’s a bag that I can probably carry for the next 5+ years. I also appreciated the discreet branding on the bag – no giant logo, thanks.

The leather satchel retails at $250+, but it was marked down to $150 at Marshalls. Add in a couple of gift cards I’ve been saving, the total comes to just under $100. I know $100 isn’t unreasonable for a quality leather bag, and certainly is a fraction of the prices of designer handbags. But it was still difficult to put down the money. I started thinking, “but I can buy 3 bags for this price. No, maybe even 4…”

Have I become so conditioned to cheap prices that I don’t want to pay for quality? After 30 minutes of internal deliberations, I did purchase the bag. This is the old “quality vs. quantity” / “price vs. value” debate. Instead of adding another falls-apart-in-one-year bag to my closet, I invested in purchased a versatile leather tote with solid construction. I struck a balance between price that I can afford and quality that I’ll be happy with. I don’t think that good quality is unaffordable – you just have to 1. buy fewer items and/or 2. look for reasonable prices, which can be found at sales, sample sales, thrift stores, or off-price retailers.

This is a consumer lesson I’ve learned: Don’t look at only price, also consider value.

The Coffee Wars: McDonald’s McCafe vs. Starbucks

Written by WellHeeled on May 27, 2009 · 18 Comments

McDonald’s and Starbucks are two of the most successful and iconic consumer brands in the world. In recent weeks, I’ve received several new coupons for McDonald’s new McCafe lattes and mochas through it’s big marketing push for the new drinks. Starbucks (who has been struggling lately after years of out-performance) must be concerned about its new-found competition.

I came upon this piece on Pierce Mattie PR‘s website (note: I am not affiliated with them in any respect), and thought they asked an interesting question:

Will this new campaign help McDonald’s become the coffee brand of choice?

Here’s what I think:

McCafe will not replace Starbucks. The consumers who are seeking the ambiance and the customization that Starbucks offers will not flock en mass to McCafes. McDonald’s, to me, appears “transactional.” People pull up to the drive-through and get a Big Mac and a diet coke, or stop by before work to grab a new latte. Despite the happy characterization of Mickey D’s commercials, few people I know would suggest that as a spot for an after-date drink or a catch-up session with girlfriends.

Starbucks, on the other hand, focuses on the “experiential”. At its best, the coffee giant truly represents the “third space” between home and work where a customer can chat with the barista, order a drink to his specification, then settle in for conversation, socializing, and relaxation. Before he leaves the store, he might pick up a CD or a Starbucks coffee mug

If McDonald’s can woo the consumers who go to Starbucks four times a week and convince them to frequent McCafe twice instead, it will have achieved great success. These consumers are likely to be more interested in a transactional experience even at Starbucks (i.e. the quick morning coffee vs. the drawn-out coffee date or after-work snack).

McDonald’s chose a very opportune moment to push the McCafe concept – in the recession all consumers are looking for a better value-proposition, and McDonalds seeks to deliver that with a lower (than specialty coffee) price point but a higher (than perceived McDonald’s coffee) quality. Before the recession, an office worker may have bought a $4 frappacino before her morning meeting. Now, with a tighter budget, she may instead grab a $2 McCafe latte.

I’m not sure if the McCafe concept as a stand-alone store will catch on – I’ve visited a McCafe, and while the space is nicer and more “coffeehouse-like” than a regular McDonald’s, it’s still a far cry from the styling and the comfort of a Starbucks. I’m very excited to hear that McCafe will be coming out with new drinks over the upcoming months. More coffee drinks are always good in my book!

What do you think? What are your experiences with McCafe drinks, and would you forgo Starbucks for McCafe instead?

The Transumer Transformation?

Written by WellHeeled on May 6, 2009 · 9 Comments

Are you a transumer? Don’t worry, this is the first time I’ve heard of the term. “Transumer” refers to a “consumer in transit”, and apparently, more and more people are joining the transformation.

MP Dunleavey wrote an interesting post on MSN Money (an aside – I would love to write for MSN Money. Just, um, throwing that out there if any MSN Money folks are reading! ) on the ownership model vs. the “transumerism” model.

ABC News also had an interview on the subject (it’s a 6 minute video – worth watching).

From MP’s article:

The transumer philosophy is largely based on a “leasing lifestyle,” according to an analysis by Trendwatching.com, a global trend-spotting company based in the Netherlands. Rather than spending your money on individual things, which you then have to keep (suddenly an old-fashioned idea), you purchase access to an array of objects and experiences. It can save time as well as cash: The more you own, the more you have to worry about, maintain and upgrade.

I’m of two minds on this trend. There are some things that I rent, but others – I want to own!

Car: I definitely love owning my car – it’s paid off, it’s mine. I don’t have to worry about going over the mileage limit, or getting out of my lease if I have to move, or fixing the small dent on the side of my door.

Housing: At the same time, I love renting right now. I am not ready to assume hundreds of thousands of dollars worth of debt at this point in my life, so I will happily rent until I am financially and emotionally ready for the responsibilities of home ownership.

Purses: As for a bag – while I admire the ingenuity of companies such as Bag, Borrow, or Steal, I have to say that I would get more enjoyment out of a bag that I OWN, as opposed to one that is only mine for a week or two. I’d rather save my money and splurge on one bag that I know I will love (and have for years), rather than have to give back my bag at the end of the weekend.

Books/Movies: I like borrowing books and movies. But the books and movies that I really love? I want to own.

Another thing I realized is that in the ABC interview, there is a lot of emphasis on “not giving up your lifestyle, but living on a budget.” Is it just me, or does this sound an awful a lot like the monthly mentality? Just because you can “afford” to make a payment of XYZ every month doesn’t mean that it’s a wise financial decision.

What do you think of this trend? Are you a transumer?

Is frugality a trend? And will it stick?

Written by WellHeeled on April 10, 2009 · 18 Comments

Frugality is the new trendy?

Reading articles on declining consumer spending and increasing saving rates (and watching new words such recessionista, frugalista, and cheap-chic enter the lexicon) has made me wonder: has frugality gotten too trendy? And, will it stick?

Frugality isn’t an issue I write on, because I’ve never claimed to be frugal – I try to save and invest, yes, but I certainly have my moments. Exhibit A: $200 worth of wool gabardine from J.Crew today (if you follow me on Twitter, you would’ve seen step-by-step how the consumer pummeled the pf blogger in me.)

As an example of some recent coverage of the new return to thrift, Friday’s New York Times article is titled: “In an Age of Austerity, the Miserly Thrive”

I cringed a little at the word “miserly”. A miserly person is someone who’s cheapness is inconsiderate and inconvenient to others. Miserliness is not a quality to aspire to in any economic situation. But I see how the title “In an Age of Austerity, the Financially Responsible Thrive” might not have the same ring to it.

Then NYT used this example of an enterprising nurse who took home a duvet off the street.

“My behavior has become less strange and more of a resource,” said Katy Wolk-Stanley, 41, a nurse in Portland, Ore. A practicing penny-pincher for the last decade, she is now spreading her gospel. Last May, she started a blog with tips and tactics for cutting back called The Non-Consumer Advocate.

She knows whereof she blogs. She darns socks, dries clothes on a line she recently hung inside her house (even though it takes a few days for the clothes to dry inside), washes and reuses plastic bags and takes used clothes and furniture people leave on the street — like the slightly torn Garnet Hill duvet cover she found recently.

“It was wet, and covered with dog hair,” she said. “I washed it really well a couple of times and mended it.” Her quest for money-saving ideas “is very energizing,” she says. “You see opportunities everywhere.”

I’m glad she was handy enough to take the duvet (it’s also great for the environment – one less duvet in the landfills). But I’d feel uncomfortable using a duvet I found off the street, “wet and covered with dog hairs.” The ick factor would be too great for me to overcome (curiously, I have no problem buying clothes from thrift stores). I’ll settle for my duvet set from IKEA (bought it during one of their one-day sales for $20).

I guess this confirms what I already know: I’m just not that frugal, I like my creature comforts, and I’m willing to pay for them (although I am willing to pay LESS for them in this uncertain economic climate).

Will Frugality Stick?

As far as will frugality stick? People will always want things (or experiences). That requires money. Real estate in desirable areas such as San Francisco, Manhattan, and Los Angeles will always be pricey. Conspicuous consumption has gone out of style – for now – but who knows?

In 10 or 20 years, if things are good again or we have another bubble – will New York Times be writing about fishing discarded bedding off the streets and washing plastic bags? Will a consultant skip her $4 morning latte at Starbucks? Will the middle-class professional woman be so eager to disclose that she got her holiday dress at Goodwill instead of Neiman Marcus? Will she even go to Goodwill?

As deep and as hurtful as The Great Recession is, can it truly, permanently reprogram us as a culture of frugality? I’m hesitant to say yes. We had a huge, wild party that went too long. Now comes the hangover and the recriminations. But after a while, after we feel a little better, after we promise to never let things get so out of control, we’ll raise a glass (or two, or three) again.

Bona fide vs. Made on the side

Written by WellHeeled on December 7, 2008 · 9 Comments

Do you purchase knock-off brands?

I don’t. Not so much as a moral imperative, per se, but because I’d rather have a quality, non-name brand handbag or clothing than a knock-off version of a name brand.

A lot of designers take “inspirational cues” from each other – so I’m not talking about the Steals vs. Deals or Lust vs. Must sections that many magazines have. I just don’t see the point of products that are pointedly and unabashedly passing themselves off as something else – i.e. a bag that has never passed through a Prada factory having the Prada logo.

If I choose not to buy the real thing, why would I want to fool other people into thinking that I did? It’s almost like putting fake BMW hardware on a Honda (not knocking Hondas here… I have a Honda and I LOVE my car).

Please, Buy Something!

Written by WellHeeled on November 12, 2008 · 8 Comments

Since I started my clothing/accessories/shoes hiatus in September that I promised to see through to the end of this year, I have broken it just once, by spending $5 on a tortoise shell necklace at a flea market.

From a personal finance, individual perspective, that’s great. But apparently, people like me are contributing to the RUIN of the economy. We now wear the sad title of American consumers who no longer consumes. (Actually, on second thought, I just contributed $500+ to the car repair industry – and to a locally-owned business to boot!)

So I think this is a time when, if you have the discretionary cash and you decide to purchase something – big OR small, you can feel truly great for helping the economy. If you are in the market for something there are GREAT deals to be had – retail, travel, hotels, cars, furniture, home improvement, etc. etc. etc.

So, all this talk about the rich should not spend because of the negative perception it creates? Rubbish! If you have the means to, go on and buy… it’ll help us all.

Personal Finance Shouldn’t Make You Miserable

Written by WellHeeled on August 19, 2008 · 20 Comments

I don’t think personal finance is about deprivation. It’s really about making the choices that will support your highest priorities – the things or activities that will bring you the greatest joy or the deepest satisfaction.

Here is the newest Ask the Expert question from CNN Money

Question: I just turned 24, and the constant pressure from financial advisers to “save save save” for retirement makes me anxious that I’ll never be able to retire. I contribute 10% of my salary to my 401(k) each year – some of which my company matches – and I recently took on a second job to save for a home. Still, I feel miserable. My friends cruise around in BMWs, but I’m afraid to spend a dime on myself lest I ruin my future. I’ve looked at retirement calculators, but most don’t let you enter an age below 25. So I have no idea whether I’m doing enough, too much or just the right amount. What do you think? Are my worries are justified? —Jessica, Boston, Mass.

I read this question, and my first thought was… personal finance shouldn’t make you miserable. (My second thought? Spending money on yourself does NOT equal ruining your future. If that’s true, my road to cat-food retirement is paved with shoes, dresses, and lots and lots of food!)

I hope Jessica knows how well she is doing. She is saving for retirement, AND taking a second job to save even more. But I believe that if something makes you truly miserable (be it a job, a relationship, or a personal finance strategy), you won’t be very successful at it for very long, and that misery will likely poison other aspects of your life.

If your personal finance is making you miserable – some adjustments are in order:

(1) Expectations: If I expect to be driving a BMW at 23, living in a luxury high-rise, and dining at Spago every week, then yes, I might be pretty miserable in my current lifestyle, which includes none of those things. If I compared myself to friends who have a $100K trust fund set aside for them, that comparison probably won’t make me feel any better. In that case, I’d need to adjust my expectations to make sure that they aren’t making me miserable. Expecting to save 50% of your income on $40,000, while living in Manhattan is probably as unwise as expecting to dress head-to-toe in Chanel straight out of college.

(2) Savings rate: When I operated on a fairly strict budget trying to save 40%+ of my gross income every month, I wasn’t very happy and wasn’t very successful at all. Now that I’ve scaled back (and have pledged to make up part of the difference by saving all of my bonuses), I’m much more satisified with my lifestyle. This also means that instead of failing every month to achieve the 40% goal, I’m succeeding fabulously at saving almost a third of my income every month. This principle can be taken too far (how much more successful would I be if I just aimed to save 5% of my income?!). But if I am honest with myself, I know which goals will allow me to prepare for my future AND live well today, and which goals will make me miserable by neglecting quality of life today.

In conclusion? If you are reading this blog, know the importance of saving, and are doing something to prepare for your future? You are already doing well. Make sure that your personal finance reflects your personal situation and priorities, and please, personal finance should be a source of joy in your life (okay, that might be the PF blogger in me talking), not a source of misery and distress.