L. L. Bean Free Shipping Critique

The article I chose to critique was the article about L. L. Bean dropping its shipping charges for online purchases. The higher ups of the company believe that this will cause an increase in profits in the long run, but I believe that it will have a significant increase in short term costs. Eventually I think it will lead to an increase in consumer demand for the goods sold by the company. Given the choice between similarly priced products, customers will opt for the one that does not have the additional shipping cost. One concept that was not mentioned in the original post was the opportunity costs associated with this decision. While they will probably increase their number of products sold, they will have to sell more in order to balance out the shipping costs that they are waiving for the customers. The company is absorbing these additional costs so there might be a slight increase in retail prices to offset the shipping cost. I do think that this is a good idea for L. L. Bean to do since it will bring in additional revenue as demand for the product increases. I also like the original poster pointed out the concept of how this relates to GDP. They said that this idea of getting rid of the shipping costs will increase demand for the product, which will in turn increase the consumption of this product on a national level, which makes up one of the four factors that determine the Gross Domestic Product rate. I can only think of one negative consequence that may rise from this that goes along with the previously mentioned rise in price. With the absence of an additional shipping charge, more people will want to buy their products which will in turn cause an increase in demand for the products. Due to the increase in demand, L. L. Bean will have to increase their production and increase their supplies of items. Since both demand and supply are rising, the equilibrium price will also rise, causing a rise in retail prices. One thing in the article that I thought was interesting that was not mentioned in the original post was how the company is promoting this new change. The company announced this change by email and television ads, but they are also picking up the bus fare on six city buses in Boston that will be covered in L. L. Bean advertisements.

Critique: Gas Prices

In response to “Why Are Gas Prices Rising,” I don’t wish to go against the authors post, but maybe add more thought to what was given and why the economy has faced such a hardship while trying to deal with the outrageous prices of gasoline. Ever since the on start of the recession, people affected by the decline in the economy have been prioritizing their wants and needs. Whether completely diminishing a good or perhaps settling for an inferior good, people have been able to cut back on a great deal of their spending in hopes to increase their money supply. There are four determinates pertaining to the demand side of the economy; how high a person’s income is, which ultimately decides whether they buy a normal or inferior good, their preferences, the population, and the prices of other goods. When it comes to gas, if one suffers from a low income, they can’t choose the inferior good because there is none. It’s not like if we go to our local grocery store where the gas price is outrageous, we can instead choose to go to Wal-Mart and buy the ‘off-brand’ or ‘out-of-style’ brand of gasoline like we refer to so many other things we buy. And lastly, there is no substitute for gasoline; we can’t choose to put apple juice in our cars because it cheaper than gasoline. Any where we go, we are stuck with a price, given it may vary a few cents depending on the gas station. Gasoline is a good that most people in America need, given the exception of the population that live in large cities and are easily able to commute due to trains, subways, busses, and other forms of public transportations.

Even though the recent prices of gas have most people, including myself, in an outrage, it helps to look at the recent patterns of the price changes that have occurred in the past. Not too long ago, this exact same thing happened. We were paying around $2.00-$2.50 a gallon but it dramatically increased to $3 and $4 a gallon. And yet a few months later, the prices dropped and people quit fussing. Like any other good, gasoline falls in line with inflation and deflation. There will probably never be a set price for gas. Also, as the author of the original post stated, it seems a big reason to blame for these high prices are due to the fighting occurring in Libya. However, Libya produces only 2% of the oil currently pumped out of the ground and is ranked on 17^th with respect to oil-exporting countries. To me, it seems like the circumstances occurring in Libya could not cause such a significant rise in the prices. Lastly, the time of year has an effect on the prices. During the summer months as well as the holidays, gas prices tend to rise due to the increased number of people who travel. I think that since its mid-April, basically the beginning of summer, gas prices will rise regardless of the things occurring around the world. Granted I definitely agree they shouldn’t be this high, but I do expect a price increase.

I think it’s hard to come to an agreement while dealing with such prices, but I think we just need to agree that nothing will ever stay the same. Prices of any good will always be increasing or decreasing but we need to prioritize and find the best solution for each problem we are faced with.

CRITIQUE: LL Bean offers year round free shipping

For my critique I chose the blog about outdoor merchandise companys, LL Bean, and their decision to offer free shipping on any and every order no matter what the quantity or size of shipment. LL Bean is now joining another online apparel company, Zappos.com, to offer a no strings attached free shipping agreement. Although this tactic may work for a short while, I am skeptical to say that LL Bean can continue to pay for the shipping fees for every order without noticing a decrease in their profit margin. This may give them a brief advantage to other substitute competitors, but how could a company know that the other online, catalog stores will not jump on the bandwagon of free no strings attached shipping. With LL Bean being one of the only companies with this offer of free shipping, it will have an advantage over a substitute company because the customer will more likely take the free shipping offer with LL Bean since they offer the same products. I do agree that customers are more likely to "trash" their shopping cart due to the high expenses of shipping and handling; I am guilty of that myself. Especially during holiday seasons, on top of the great deals from sale prices, many companies offer free shipping to online customers. It could be said that this is an example of expansionary policy for the apparel world. The companies want to help stimulate the sale of goods and by doing this more consumers purchase more because they feel like they are getting more for their money. LL Bean chief marketing officer, Steve Fuller, stated that the company was on the fence about offering this free shipping for a few years and they occasionally offered it to see how the customer base would react. Many customers took advantage of this offer and it allowed the decision of the company to be much easier. The fact that LL Bean listened to its customers may also get a higher loyal customer base even if its competitors decide to jump on the bandwagon of free shipping. With the 5.8% increase in sales already from last year, LL Bean is counting on the free shipping to boost sales even more and plan on the increase in sales to offset the cost of providing free shipping. Overall, I feel that LL Bean is making a smart decision by offering free shipping to customers during this economic downfall.

Critique on Federal Lending Crisis

This article talks about the issue of the Fed loaning out large amounts of money to help keep banks afloat during these rough economic times. Smaller banks would take out loans as low as $1,000 and then you have banks borrowing 6 million and still going bankrupt shortly after. Small and large banks all over the country were having severe issues in 2007-2008.
I do believe people should know how much and how often their banks borrow money. Yes, it may discourage them from using the bank but they should know what kind of organization they are trusting their money with. If they are dealing with a bank who is barely keeping their head above water, they might approach and handle situations differently. I am looking at it more as a civilian and not an economist though. I know if I am working everyday for my money, I want to put some place I know it is safe.
I do think it is important for the Fed to offer loans to the commercial banks; because without that the smaller banks will not be able to borrow money. Even though I said people should know how much and how often their banks borrow money, but everyone goes through rough spots. Borrowing money shouldn't be seen necessarily as a bad thing, because again it is basically unavoidable. But if your bank has to borrow 6 million and still cannot operate, something is wrong.
Overall I thought it was a good blog, it gave a good definition of how the Fed worked. I think anyone who didn't know anything about the Fed would have a much better understanding of it just by reading this blog. I would have liked to known a little bit more about what they personally thought about the situation.

Critique-Why Are Gas Prices Rising?

The two articles used in "Why Are Gas Prices Rising?" discuss and try to pinpoint the issues behind gas prices rising. Analysts estimate prices could rise to $4 a gallon in the near future. Such a dramatic rise could hinder our already slow economic recovery. They attribute the rise in prices to the situation in Libya and surrounding areas. Analysts are very worried about protests beginning in Saudi Arabia because they supply 10% of the world’s daily production of oil. If protests began in Saudi Arabia oil prices would skyrocket. To aid the price raises the United States government contemplated using USA's 727 million-barrel reserve oil to aid in lowering the price of oil. Its estimated that for every $0.10 rise in gas prices it takes $14 billion per year out of the consumer’s wallet.

The original blogger mentioned how technology and taxes could potentially affect prices. These were good points and plausible situations. However, not discussed, were some of the current issues affecting this rise in gas prices. Uncertainties and price expectations are affecting gas prices and the economy’s recovery.

Currently, gas prices are rising largely due to uncertainty and expectations about what could happen in Libya and Saudi Arabia. Price expectations are the first part of the inflation equation. In this situation, this number would be very high because consumers are expecting that if the outbreaks continue in the Middle East, production of oil will cease, supply will decrease, and there will be large jumps in prices. Expectations such as this, could lead to an outward shift of the short-run Phillips Curve, as well as, a possible inward shift of the aggregate supply curve.

This rise in gas prices is only going to slow down the United States road to economic recovery even more. Gasoline is a relatively price-inelastic. Meaning consumers will pay any price because they need the good, gasoline, to function normally in their everyday lives. This is easily seen in the Bureau of Economic Analysis’ most recent report. The changes from quarter to quarter of the consumption of gasoline and other energy goods are minimal, at $285.5 billion in 2009 and $284.5 billion in 2010. These numbers show how inelastic gasoline is because its consumption was barely changed even through a recession. This most recent rise in prices means consumers will be putting more of their disposable income towards gasoline instead of spending it on clothes, cars, food, or investing which would all help the economy.

At this point, we can only hope that this rioting ends soon. Not only for the safety of the Middle East, but also so oil prices can decrease and our economy’s recovery can speed up.

Critique - Japanese Banks: Home and Away

The blog post, “Japanese Banks: Home and Away” touches on several crucial points and thoroughly investigates the way in which the Japanese banks are in trouble and are finding success. The blogger makes good use of economic terms and makes the article easy to read. Additionally, I find the idea of speculation at the end of the article to be a very clever touch and I am inclined to agree with his take on how the crisis would affect the issues facing Japanese banks.
Overall, the issue with the Japanese banks is one that should be enviable by other banks, and the blogger states as much. I think that while this is enviable, the blogger missed a crucial part of the article that stated that past failures in foreign investments and corporations had not gone well for the Japanese in the past. These past failures demonstrate some of the trepidation on the part of investors. With the seeming unwillingness of the Japanese to expand their traditional isolationist policy and incorporate foreigners into the hierarchy of their foreign acquisitions, the issues facing the banks and their stockpiles of money may not be as simple as taking advantage of the tragedy with the tsunami and finding the now needed investors.
Furthermore, while the blogger makes a good point about how there is now greater investment demand (total amount given to the economy by firms and corporations), the source of the loans must be reanalyzed as well. Yes, people will need to rebuild and take out loans in order to survive this tragedy and the banks are very eager to do this; however, the situation has changed drastically for the Japanese. The blogger failed to mention a very important part of investment on the part of the demanders and consumers, confidence. The confidence in the overall structure of Japan is very fragile at the moment and there are great international concerns about the pressures created by the tsunami and its devastation. Consumer confidence is essential to the success of these banks and the loans given out. Without the confidence in the loaners, the loanees might ultimately look in other directions for their loans – directions that have more stability and are less likely to be affected by crises in the near future.
Ultimately, this article and post were very interesting and provide much to the think about. The difference that two weeks makes is quite shocking as pointed out by the blogger. It will be interesting to see if the Japanese banks can capitalize on the increase in demand or if they will ultimately suffer like the rest of the economy as a result of the fear created by the disaster.

http://www.economist.com/node/18233464?story_id=18233464

Critique of GDP Growth

GDP Growth, By Matt Kline
Critique, By Tyler Lackey

Matt discussed in his blog the growth rate of the United States economy in the final quarter of last year. The growth rate for our economy was 3.2 percent and it was only predicated to grow at a rate of 3.0 percent. I agree with Matt that this is great news for our country. Our country is technically out of the recession but it will take a very long time for the economy to reach the level it was at before the economic downturn even with the growth that is taking place. This is a positive start for our country, as our economy continues to grow the American people will become more confident about spending and investing their money instead of saving it worrying about if the economy is going to turn south again.

Matt also mentioned that the government needs to find a balance when it comes to spending and taxes and again I would have to agree with him. I believe the government needs to spend less and lower the tax rate for the American people and businesses. If people owe the government less that is more money in their pockets that they have to spend, if consumers have more money there is more incentive for them to spend it and that will help the economy start moving again. The same is true for businesses; lower taxes and they will have more money to spend. The extra money businesses have on hand can be used to create new jobs and hire new employees. The addition of employees to the labor force results in more people with money to spend and a decrease in the unemployment rate.

The Federal Reserve has also been working to help get the economy rolling again. One thing they can do is reduce the RRR which Matt mentioned. If banks have more money on hand they can lend to more consumers who will turn around and use the money to purchase needed goods or services. This again goes back to finding ways to put the money in the hands of the consumer, the more money they have available the more they are going to spend. Increases in the sale of goods will hopefully mean job security for the workers making those goods. Knowing that their job is safe, those workers will go out and purchase other goods. This is a revolving cycle; if consumer’s faith in the US economy is restored they will start purchasing goods and services more often hopefully leading to economic growth.

Samantha Kessel
Blog Critique of “Why does money have value?”
I chose to critique this blog entry simply because of the article title on which it is based. I have always wondered how money works exactly. It’s simply pieces of paper with various prints on it yet we can use it worldwide to buy various goods or services. In class we discussed money and how it is useful due to the phrase “this note is legal tender for all debts, public and private” meaning that its value is actually backed by the government. This just sounds so crazy to me, the idea of a paper being worth something simply because of the words that are on it; also the fact that the government, which is in more debt than I can even begin to wrap my head around, is the backer of our currency. The author of this blog focused on the primary point I also caught onto in the article which is the idea that money is simply a good just like everything else that is produced. I never thought about the fact that money is simply a good that is produced and that it really can be traced back to the old days of the barter system where we were simply trading one good for another good. The article also relates the idea of money to something that we can all relate to; if someone else has it then it is something that we want also. This idea is seen from childhood on, we always want what other people have and money as a good is no different. The article also makes a good point when it comes to the idea of inflation. For many people in class we learn about inflation yet we do not actually completely understand it because it is not something that we have actually had any experience with in our lives. The author of this article however makes it much more understandable by describing it as a time where we no longer know what our dollars are actually worth. For example we could take an entire barrel of money, as stated in the article, to the store to buy something as basic as a loaf of bread. The article also directly relates inflation to what we have learned in class by describing why inflation or deflation even occurs. It states that inflation is related to the same principle as a supply/demand system. This tells us that the supply or demand for money can be affected not only by money directly but also by the rise or fall in the supply or demand of other goods. This article is a great summary of a product that we take advantage of every day yet many people do not actually stop to consider.

Critique: The United States Housing Bubble and The National Association of Realtors Commerical

A recent commercial aired by the Nation Association of Realtors prompted me to want to explore this article. The original article from the global news source Reuters, which Jack had chosen, provides an update of the current housing situation here in America (which looks pretty grim). Jack’s initial response to the article furthered my interest because he applied some things learned earlier in the semester to explain why the housing market collapsed the way it did.

The recent commercial aired by the Nation Association of Realtors advocates that housing sales creates jobs; for every two houses sold one job is created. Further more on their website, the National Association of Realtors argues that the housing industry is what pulled the United States out from six of the last eight recessions and at the end states “Jobs and homeownership. You can’t have one without the other.”

The housing market went into turmoil because of the faulty mortgages being handed out. The American dream after World War II was to own your own home. Mortgage brokers not only supported the dream to own your own home but helped place people in homes, which were beyond their means. Their crucial error began here when they started providing extremely risky mortgages to people who had little probability of being able to repay the mortgage. As mortgages failed, they were split into packages and derivatives and resold. As money available for investment became scarcer due to minimal returns on investment, investment supply could not satisfy investment demand. The housing market might have helped pull the country out of the recession six of the last eight times, but the housing market this time around helped pushed the country back into a recession.

As found by Okun’s law, as RGDP increases, unemployment decreases, which theoretically does support the idea that housing sales create jobs. The National Association of Realtors’ statement “Jobs and homeownership. You can’t have one without the other” brings fourth an interesting thought. There is by no means a shortage of housing; the issue is the inexistent demand for housing though there has been a significant decrease in price. Such a large decrease in price with minimal affect on demand indicates that people still do not have the money to purchase housing. The statement in discussion is really a two-way equation. The National Association of Realtors I believe implied that by buying housing, jobs will be created. This may not necessarily be false, but it appears as though jobs are first needed before home sales will improve. “I think recovery can be anticipated given affordability, though employment must improve.” –David Carter, Chief Investment Officer of Lenox Advisors. Further more, in theory, if banks were to support the National Associations of Realtors, they would once again be issuing loans to people who may not necessarily have the means of repaying them; exactly what landed the housing market in this mess in the first place.

Critique on Fear and Uncertainty take Toll on Spending

http://www.thefiscaltimes.com/Articles/2011/03/27/Fear-and-Uncertainly-Take-Toll-on-Spending.aspx

I found both this article and the critique extremely interesting. I liked the way the original blog touched on the idea of the “wealth effect.” This concept seems very relevant in this article and it was extremely crucial that the blogger write about it. It makes perfect sense that when people have more money to spend they are more likely to invest it in other ways than just normal banking.

One thing that came to mind for me while reading this article was the concept of risk. I know we talked about risk mostly when dealing with interest rates, which also seemed very relevant to this article. When people have lower more money they are more likely to invest in thinks that are riskier but have more of a payoff if Murphy’s Law isn’t at play. An example of this is a trust fund. Many times people who have more money can contribute to something riskier such as a trust fund which is much riskier because in turn you are turning your money to a stranger to handle but the rate of interest that could possible be tacked on to your original sum is the real benefit.

Another idea the blogger touched upon was the idea of confidence or the idea of making more conservative decisions based out of fear. I mean it really makes sense that in an unbalanced economy it is difficult to have faith and put money into an economy that has possibly destroyed you financial standing and or someone you know. I found this quote interesting “almost a third saw a loss greater than an entire year’s income.” To me that seems so extreme but it is certainly believable. The current recession, as defined by the bureau of economic affairs as two or more consecutive periods of decrease, is one that seems to have affected so many who usually are unaffected by recessions. Personally my father was laid off during the recession and I know first hand this idea of fear of spending. My parents made a lot of financial decisions based on fear. They pulled money out of trust funds and put most of it in normal savings accounts for risk of losing money.

Lastly I’d like to touch upon the graph that the blogger didn’t quite touch upon. I think it can be seen as a definite positive that the graph seems to be increasing. From 2009 to 2010 there was a certain drop but then a definite rise. Like many of the reports we observed in class it seems our economy is increasing which is really exciting!

Critique of "The Fed’s Crisis Lending: A Billion Here, a Thousand There"

The Federal Reserve is every smaller banks “big brother”. In the economic crisis of 2008, the Fed loaned to banks and lenders all over the world to help keep them afloat. Not every bank borrowed a lot of money. A small bank in Florida borrowed only $1,000 and paid it back the very next day. Other banks were not so fortunate, and borrowed millions. Recently, the data of the discount window was published. It showed how often every bank borrows and how much they borrow. I do not agree with the name of the bank being published. This will discourage the banks from borrowing, possible when they are in a serious crisis. The data is good to look at, but it should be anonymous, and maybe just the country of the bank. Many banks, large and small, need these loans to help as a safety net, and they will be discouraged to do so. If the larger banks don’t borrow from the Fed, then it makes it impossible for smaller banks to borrow from the larger banks. The Fed offering a discount rate to the commercial banks is really a benefit for both the smaller bank and the Fed. I think the original post should have included how not every bank can get a loan. In the article it stated that a small Vermont companies and other places across the country have good credit and still weren’t able to receive a small loan. They continue to loan money to those big banks that are billions of dollars in debt. I am assuming this is because they are a bigger bank and they must provide for smaller banks but it just doesn’t really make sense to me why they would loan to someone who already is in debt either from them, or from another bank, when there are smaller banks all over who just need a safety net. Overall I think the original post was a good summary of the article. I would have liked to read more about what the author of the post thought. It was a good overview of how the Fed works with the discount window, definitely not how they work otherwise. I don’t think the discount window should be published with bank names. This will cause discouragement in borrowing all over the world and will end up hurting the Fed in the long run because no one will be borrowing from them so they cannot get any interest back. http://www.nytimes.com/2011/04/01/business/economy/01fed.html?_r=3&adxnnl=1&ref=business&adxnnlx=1302879730-vT5TgyflLJNB22enXRhS9g

Critique: Fear and Uncertainty take a toll on spending

I agree with the majority of the points in this blog. A huge reason that the economy is taking so long to recover is because of the lack of money the people of the country are putting back into our economy. This could be caused by several very valid reasons. The baby boomer generation is the one that has seen the most drastic change in the economy and it is understandable why the number of people who are retiring in their 50's has greatly decreased. With uncertainty in the economy the marginal propensity to save greatly outweighs the marginal propensity to consume. Although the disposable income of households may be greater now than in recent years due to their current savings rate, people are not looking at their disposable income as "safe" to spend.

The main thing holding consumers back from being comfortable with spending money is the uncertainty in the economy. The target being the baby boomer generation once again. There have been many ups and downs in the economy lately that even when things start to look up for a short period of time, there is still a great deal of skepticism amongst households. If there is once area that people will be cautious and conservative it is when dealing with their money. There needs to be a longer period of stability in the economy before we will really start to see the money circulation start to steadily increase. Like stated before, even though the average wealth of households has generally increased in the last 18 months, the spending has not increased. This is another perfect example of basic fear in the economy.

The majority of people obviously lost money in the recession due to various reasons. The losses came from bad investments, losing money because of banks, and lack of knowledge about the recession. It was stated in the blog that the people who actually gained wealth during the recession were more likely to have an increase in their savings rate. They said that they felt the need to save more for emergencies and unexpected expenses. This is technically the opposite of the wealth effect. This is probably because the ones who gained money were able to witness the terrible times that the people who lost a great deal had to experience. This making them more cautious because they simply did not want to have to go through that themselves.

Critque- Why does money have no value?

Why does money have value?

Benjamin Holler

I agree with the author of this article and in the blog, money really has no value. This has been true since the 1971 when Nixon got rid of the gold and silver standard. Before money was backed by something to help keep the economy stable, but now there is nothing, it could be looked at as worthless if we all got together and got rid of the demand. As I am a history major I saw this same thing during the Weimar Republic in Germany just before World War II. As we learned in class at this point in Germany history there was hyper-inflation which made money worthless and people tried to get rid of it as fast as possible. The Weimar Republic tried everything to get the money to hold to something, even creating a whole new currency.. Almost everything failed until the republic but land value behind the money. This in the sense is the same thing as the gold standard but with a section of land. This for the people of the country gave them faith in the money, even though the government lied about the value. The government in Germany would never sell the land but no one questioned it. This barely helped the economic situation in Germany and only until the Weimar Republic fell and the preparations of war came did the country get out of the trouble. If we all decided as citizens of the United States to not accept the dollar and do not demand at all, we will see money disappear because there is no backing to make the dollar worth anything. The article and the author of the blogs goes into saying inflation is related to the response of the people to the money. The people do not believe in the money and spend it right away, and then business will change prices several times a day to keep a profit. This is almost like a snowball effect, which can be devastating for everyone. This issue is still in today’s decision in the United States. Senator Ron Paul sought to change the law in 1971 for Americans to go back onto the gold standard. He even ran for president behind this fact. In all I believe the author of the article and the blog have valid points that everyone should be aware of, we as a people need to see this problem that could arise before something happens.

Critique: The United States Housing Bubble

Critique: The United States Housing Bubble by Jack Dings

I chose to critique this article mainly because after the first time I read through Jack’s entry on it, I quickly felt like his response sounded like an article summary from one or two years ago. This is mainly because he begins by explaining why and how the market crash began. I found this strange because the short article that he chose to write his blog on does not mention the “.com era”, for the article is mainly focused around explanations as to why housing prices dropped so much in February of 2011. Jack also mentions that the United States is now recovering from the housing crisis. While this may be true, this is not what the msnbc article discusses. The article is based around economist’s frustrations on the continuous plummeting of sales for previously owned homes in the United States. February marked the lowest of lows in nearly nine years for sales of these homes. Even when just compared to February of last year, the sales of previously owned homes dropped down 2.8 percent. Jack seems to use his previous knowledge when explaining the housing crisis and fails to touch on the major points of the article.
There are many interesting points of the article that Jack fails to touch on. I find the quotes from Tom Porcelli, the chief U.S. economist for RBC Capital Markets, and David Carter, the chief of the investment office at Lenox Advisors, helpful in explaining what can be expected in the future and what can be done to put an end to the housing issues. Porcelli explains that due to the imbalance in supply and demand within the housing market, we cannot expect any positive outcomes or end to the crisis for at least a year. He also makes a somber prediction that he expects another 5 to 10 percent drop in home prices over the next year, causing a drag on the economy (and GDP) overall. This will only continue to bring our economy down while the lack of selling and purchasing homes negatively affects mostly all components of gross domestic product. Carter’s comments suggest that recovery can possibly be anticipated sooner than Porcelli may think. He sees a potential turnaround in the market due to the recent increase in better affordability. Carter suggests that as affordability hopefully continues to increase, the market’s recovery can be expected. However, he does also touch on the fact that employment must improve to better the economy; even with the recent positive events having to do with affordability.
Overall, I found that Jack’s biggest mistake was failing to make the main points of the article the focus of his blog entry. Looking passed this, he does a good job at using economic vocabulary and terminology. Next time, I would suggest that he pays closer attention to the structure of the article he uses.

Critique of "L.L. Bean Free Shipping"

The blog I chose to critique is on the article titled, “L.L. Bean offers year-round, no-strings attached free shipping.” This article discussed the news that in order to get an edge on its competitors, L.L. Bean has decided to offer no shipping charges on any purchases no matter what the cost. The company decided to do this after years of researching the effects of free shipping on their profit margin. One way that the marketing officer evaluated the possible result of free shipping on consumption was by examining the rate that online customers decide not to continue with their choice after seeing the shipping fees. With this examination, they discovered that nearly three quarters of customers discard their online shopping cart after seeing the shipping fee. Another way the article said that the company evaluated the result of their decision to offer free shipping was by testing occasional free shipping. This test revealed that this promotion set well with the customers. It is important for companies to listen to the customer demands in order to increase their consumption. Over the last year, L.L. Bean saw a 5.8 percent gain in sales from the free shipping offer. The company is hoping that the increase in sales by the quantity of products demanding from L.L. Bean will offset the shipping costs that it now has to pay. I agreed with many of the things the person who wrote this blog said. Consumption is a very valuable part of Gross Domestic Product and even though this is just one company, it is still a contributing factor to the national number. She made a good point when she said that the L.L. Bean products being a substitute good for other goods that are not supplied by companies offering free shipping. If someone is deciding between two of the same products that are the same price except for the fact that one of them has a shipping fee, the person will choose the one without the shipping fee. With the quantity demanded of L.L. Bean products increasing, the money supply will start to increase and the company will reap the benefits of its no shipping offer. Once other companies see the company’s gain from this offer, they will then start doing the same thing in order to keep in competition with them.

L.L. Bean offers year-round, no-strings attached free shipping

Critique of L.L. Bean Free Shipping Article

In thinking about L.L. Bean’s decision to offer free shipping, no matter the order size or type of good, makes perfect sense for their retail business model which is based primarily on taking orders from their catalog, phone orders, and more recently internet based orders. Unlike most retailers that depend on reaching the public by operating hundreds of stores nationwide, Bean continues to stick by its original business model, which emphasizes high quality outdoor goods merchandised through its catalogs and online store front. Though Bean will experience higher shipping costs, it seems clear that the benefits of achieving higher sales and continued avoidance of operating in a multi-store retail environment will far outweigh these costs.

In addition Bean should earn increased goodwill from its customer base. If three quarters of consumers are abandoning their online shopping carts due to the lack of free shipping, clearly the market has spoken that paying for shipping costs on top of the costs of the good being purchased is more than a mere annoyance. Considerable sales are being lost for a reason that the company can control. By making this decision Bean removes a major obstacle to achievement of a sale. Most likely Bean will account for this increase cost in the pricing of its goods.

Since 1912, Bean has been operating on this mail order shipping model to achieve national and international sales. The article mentions that Bean uses UPS for its shipping services. Presumably, with an expected higher volume of shipments, Bean will try to negotiate lower shipping costs in return for the higher volume in order to manage the overall cost increase that the company expects. If UPS were unwilling to negotiate on price, Bean would always have the option of exploring what competitors such as FedEx would offer on substitute pricing.

In terms of the original blog, I agree that the customers will be happier with the free shipping. However, I am skeptical of whether or not the consumer will truly avoid paying for the cost of shipping. Unless Bean can manage its contract with UPS (or some other firm) it will be eating into its profit margin. While it is possible to achieve as much if not greater profitability on a smaller profit margin provided that sales increase efficiently, I suspect L.L. Bean might build in some of these higher costs in the pricing of its goods. I also agree that from going the free shipping route that L.L. Bean now does have a one up on other businesses. Customers will more often than not always go with Bean assuming that other competitors do not follow suit because no one wants to pay higher prices.

To an extent Bean is responding to zappos.com. It will be interesting to see if internet and mail order based retailers jump on this band wagon of free shipping meaning that Bean’s competitive advantage could be short lived.

http://www.usatoday.com/money/industries/retail/2011-03-24-ll-bean-free-shipping.htm?loc=interstitialskip

Ned Feldmann