The Challenge Dividend

Partner Turbulance at Airbus

It's hard to be at the helm of an airline manufacturer.  Product development time lines are years long.  Fixed costs are astronomical.  And there's a lot of, um, distractions for senior leaders.  But things are even harder when national rivalries are at stake.  Last week a loyal reader pointed out that Airbus has been unable to implement a restructuring plan because of protests among its stakeholders.  It's a good reminder that some kinds of challenges can lead to failure.

Airbus is owned by the European Aeronautic Defence & Space Co (EADS).  It started in 1970 as a response to a shift in market share to U.S. companies like Boeing and McDonnell Douglas, with significant government subsidization from France, Germany, Britain and Spain.  For years, the company has struggled to satisfy the governments and labor unions of these four nations.

Most recently, Airbus has struggled to slash costs and increase efficiency in a bid to keep pace with its competitors.  Louis Gallois, CEO of Airbus and EADS, has moved to fix the company with a strategy called Power8.  However attempts to implement reforms are bogged down in national politics.  Each of the four member nations is vying for preferential treatment amid plans for selling facilities, cutting staff and increasing purchases from outside suppliers.  Last week, the hosts of CNBC's Morning Squawk cackled with laughter at the Europeans' infighting.  Meanwhile, Boeing's new 787 Dreamliner is racking up impressive orders.

So why isn't the challenge of these national co-owners driving improvement?  Because these challengers are not fighting to make a better company, but rather to protect personal interests.  Organizations need to have a united focus on making better products and services if they want to succeed.  Internal debate over the best way to do this is great - for example, multiple design teams fighting for approval of the next airplane design.  But infighting over personal benefits only weakens competitiveness against outside firms.  This is the same for office politics or national politics, as it takes the players' eyes off the goal of improving profits and customer value.

Last week I shared the example of how NASCAR is winning fans and gaining on other sports leagues because it is owned by a single family.  This centralized ownership allows the organization to respond better to the "real" challengers - other sports.  And just because NASCAR has a single owner doesn't mean that its makes decisions without consulting others.  In fact, the racing teams, fans, and sponsors are part of the program, and NASCAR makes its decisions to best please all parties.  If not, these supporters will go elsewhere.

But at the end of the day, troubles at Airbus will mean trouble for Boeing, airplane customers and ultimately consumers.  Without a strong rival in Airbus, Boeing will likely grow softer as well, by, say, raising prices on its planes or dialing back R&D efforts on upgrades.  Perhaps the best thing for everyone would be for the four governments in Europe to exit the plane game and get back to better serving their people.

Will Merger Kill the Satellite Star? - UPDATED

After months of public posturing and secret negotiations, news finally broke last week of a proposed merger between XM and Sirius, the only two satellite radio companies in the market.  As a Challenge Dividend believer and loyal XM listener, my gut is that this will be a long-term negative for the industry and consumer.  Here's how I see the Challenge Dividend Pros & Cons:

Pros:
- Competition is wider.  Consumers get music in many, growing forms.  Aside from terrestrial radio, there's Internet stations (I'm listening to Groove Salad as I type, btw) and even iPod collections compete for listeners' attention.  Instead of fighting each other, the merged company might become a focused force bent on converting new listeners.
- Exclusive deals hurt consumers.  XM has MLB, Sirius has the NFL.  Fans of both sports want the option of hearing both, but are not going to subscribe to both services.  The leagues are big winners, as they watch the bidding go up to outrageous levels.  Same goes for auto buyers, who are forced to go with whichever company paid the highest price for rights.
- Consumers continue to have a choice.  Since satellite listeners are paying for these services, in a way they apply constant pressure.  If station quality drops or commercials are added, they will simply tune out and save $12.99 per month.

Cons:
- Competition has driven investment.  The fight to win subscribers over the other guy has led to a rapid expansion in the features of satellite radio, as well as better service and channels.  Without this pressure we may see less investment in R&D and signal quality, for example.
- Some consumers have less choice.  A core group of satellite radio subscribers are already "addicted" to the service and have few choices.  Think long-haul truck drivers and one-hour commuters.  The merged company might milk these folks with higher prices or commercial ads.
- Investors will have less choice.  One of the strongest forces of pressure in this market has been the ability to compare XM and Sirius in their financial reports.  Analysts were able to judge which was more efficient in acquiring subscribers or negotiating with content providers.  The best business was rewarded with a higher stock, and the weaker player saw what it needed to fix.
- Cost of entry is high.  Terrestrial radio is horrible, and Internet to your car is still a way off.  Meanwhile, the cost of putting a fleet of satellites in orbit - especially against a massive, merged leader - is out of the question.  An entry barrier like this is great for SiriusXM, but likely bad for consumers.

On a final note, it will be interesting to see if the Federal Trade Commission actually approves the merger.  It seems hard to believe that a now Democratically-leaning, more anti-business government would allow the only two players in the satellite radio game to join up.  In one comparison, a few months ago, Procter & Gamble was forced to divest Crest Spinbrush, Rembrandt tooth whitening, and Right Guard deodorant brands to allow the acquisition of Gillette.  It would seem that a satellite radio monopoly is more critical than grooming products, but who knows.   My bet would be that there is at least a multi-year freeze on raising monthly fees.

Time will tell how this impacts the media and Challenge Dividend landscape.  But my gut is saying that the improvements that satellite brought to the market might come crashing down to earth.

UPDATE: XM and Sirius are wrapping up their case before the Federal Communications Commission as I write.  Interestingly, they threw out an offer to introduce a la carte pricing for their content post-merger, giving consumers the choice to pay according to the channels that they actually want.  This is actually something the government has been close to requiring for cable and satellite television.  A la carte pricing is consistent with good competition and offers a consumer value.  I'm still not sure that this merger will help or hurt innovation and consumer value in the long-run, but I like that the government is in a position to ask for pro-market changes.

Praise for Trying - UPDATED

One of the challenging aspects of parenthood is the eternal pressure to not treat your kids in a way that screws them up for life.  To add further pressure, you don't really know whether this challenge results in dividends until sometime around the time they leave college and move out of your house.  But once in a while researchers spend decades with hundreds of kids and parents and share their findings with parents like me.  They teach us what not to do before we do it.

This week, New York magazine published a fascinating piece on such research and it seems to be hitting close to home with parents in the blogosphere (thanks Marginal Revolution).  The gist of the research is that parents should refrain from praising their children for being smart, and instead provide specific positive reinforcement when they try something difficult.

The first point of rationale is that "being smart" is like a natural gift which comes with no effort.  Studies show that children who are told they are smart unconsciously avoid testing themselves.  Lacking confidence that they have earned success, "smart" kids are afraid that by trying tough tasks they will fail.  With failure, "smart" kids find that they are no longer special, and their egos are crushed.  This fear pushes them away from potential failure.

Second, children who are given specific praise on their hard work learn that success lies in their own hands.  Experts say that the best thing we can say to a child is that "the brain is like a muscle, and giving it harder work makes you smarter."  Studies show that just saying this to kids can improve math scores.

Finally, we have to remember not to over-reward and praise our children.  Research shows that "a person who grows up getting too frequent rewards will not have persistence, because they'll quit when rewards disappear."  Ultimately, we want our kids to be completely self-motivated and earn rewards on their own; not to mention learn that sometimes life is unfair, and that hard work doesn't always pay off.

While I'm not excited to get yet more to worry about as a parent, I am a firm believer in this new research.  At the end of the day, it is consistent with The Challenge Dividend, and these experiences help children learn how the real world works.  In the real world, hard work and persistence usually pay off, while resting on "gifts" often fails to pressure us to improve.  The latter is similar for children of rich parents, who are often shielded from real life struggles.

Reading this article, I was reminded of sled riding with my 6-year-old, Grace, over the weekend.  After a long ride, she wanted me to carry her up the hill.  But I insisted that she walk.  After a little protesting and plopping in the snow, Grace gathered herself and trudged ahead.  I giggled with pride as she said, "I've got the courage, Daddy!" and mounted the crest of the last hill.  As I turned to head for home, figuring she was pooped out for the day, Grace called out "Let's go again!"  Hard work has its rewards, alright.

UPDATE: There's a new book out on the topic of teaching children and adults how to improve their thinking through hard work.  It's called Mindset: The New Psychology of Success, by Carol Dweck. If you don't have time for the full book, here's a three-minute version (thanks to Guy Kawasaki for the find).

NASCAR's Steriod-gate

This past weekend was "The SuperBowl of NASCAR", the Daytona 500, and I was glued to my television for much of Sunday afternoon enjoying the sights and sounds on my new HDTV.  The exciting finish capped off a great two weeks of build up.  Oddly enough, perhaps the greatest news of the week was NASCAR's discovery and punishment of cheaters.  By catching and quickly punishing the guilty parties, the sport is preserving a very productive Challenge Dividend.

Many fans were disappointed in the cheating by several stars in the sport.  Five racing teams have been subjected to fines or suspensions.  Jeff Gordon's car flunked post-qualifying inspection for being too low.  And Michael Waltrip's car contained a "jet fuel-like additive".  For me, these cheating attempts and the crackdown by NASCAR only show that the sport is in track to continue its rise.

In the past, bending the rules has been considered another part of NASCAR's charm.  Many have repeated the old cliche in the past week: "If you ain't cheatin', you ain't tryin'".  On ESPN this weekend an analyst brought up another classic, "NASCAR is a little like pro wrestling."  But the sport continues to crack down on rule bending at the same time as it attempts to broaden its appeal.  Some call the cheating "innovation"; but open rules are needed to ensure that The Challenge Dividend will create positive competitive pressure, and improvement in the form of better racing.

The rationale behind NASCAR's rules are as follows:

• This is "stock" car racing - meaning each driver and team is meant to have an equivalent car.  Stock car racing is aimed to make it cheaper for teams to compete.  (Formula One, in contrast, allows much more creative mechanics, and the demand for R&D means only a handful of teams can afford to compete.)  So for starters, cheaper cars allows more competition.
• Equal cars ensures that competition comes down to driving skill and pit strategy.
• This builds a fan base around the drivers and pit crews.  Every bit of the competition is visible for all to see (rather than resting in a lab somewhere).
• But if "creative" parts and fuel additives come into play, fans can't trust that the best driver and team will win.
• So NASCAR invests in extensive pre and post-race testing along with ever-stiffer punishments, including disqualification from races and the Chase for the Cup

In many ways, the controversy mirrors steroid and other performance-enhancing scandals in sports like baseball.  Players and owners will always look for a new edge because the pressure to stay at the top, and rewards for doing so are growing.  But the sports must prevent cheating or fans lose their trust that any contest is legitimate.

The MLB ignored beefy hitters and home run records for decades, then spent years setting up a very modest policy.  But NASCAR is solving problems quickly and effectively.  The difference? NASCAR is owned by a single family, and its chairman Brian France.  This centralized ownership allows the sport to move quickly and efficiently, whereas baseball's owners can agree on very little.

I love that Bill France and his family never stop tinkering with the sport in order to drive its popularity further.   The Chase of the Cup - an equivalent of playoffs for the sport - has been successful and was recently tweaked to allow 12 drivers in.  And in 2008, all races will feature "The Car of Tomorrow" - which is specifically designed to further reduce differences in cars.

Continual adaptation by NASCAR will make the sport more competitive with sports like the MLB, NBA and NFL.  By avoiding the specter of cheating, the NFL's championship might one day be called "The Daytona 500 of Football."

(The photo above is Mr. Clean with Tony Stewart right before Tony's win in Daytona's Busch race in 2005)

New Thinking for an Old Airport

Everybody loves a comeback story, even when it's an airport.  I love to write about underdogs that take accept the Challenge Dividend and innovate - especially when they are government-related.  The story of Midway Airport is one that should make everyone happy.

Midway Airport in Chicago was the world's busiest during the adolescence of the passenger air travel market in the 1950s.  But in the early 1960s it was overtaken by nearby O'Hare.  Since then Midway has been an afterthought, the second tier in the second city.  For years, supporting the airport has been yet another pressure on the City of Chicago.

But now Midway and Chicago are turning pressure into innovation with a grand plan to sell the airport to private investors for a projected $3 billion.  Midway would become the first privately-owned airport in the United States.  This week's Fortune magazine describes how Chicago has already turned several public assets over to private investors, including the Chicago Skyway and several municipal parking lots. The big benefits for the city are an influx of cash and eliminating inefficient bureaucracies.

In addition to helping city government, a look at private airports around the world suggests that this plan will be a boon to travelers as well.  As Fortune reports, the owners of more than 100 private airports around the world follow a similar play-book:

"To boost revenues post-privatization, operators typically focus on two primary profit streams often overlooked by government owners, both of which can have a positive impact on the airport experience.  One avenue involves monetizing an airport's excess real estate by building parking lots for travelers or warehouses for companies such as Fed Ex that want to be on the runway.  The other is adding restaurants or high-end clothing boutiques and getting passengers through security quickly so that they can spend more time (and money) in the terminal."

As in any compelling story, this one has a cast of villains to overcome.  In this case the villain is special interests and a general political fear of foreign ownership.  Several of the leading airport management companies in the world - those that would bid the highest and run Midway most efficiently - happen to be foreign owned (Australia's Macquarie and Spain's Ferrovial).  As you read here a few weeks ago, foreign ownership of air travel assets strikes fear in protectionists.  But Mayor Daley's national respect and friendship with the new Democratic Congress might carry the day.

Let's hope the story of Midway Airport gets the happy ending it deserves.  And may it spark an airport revolution across the country.

Jobs Cedes His Monopoly

Put yourself in the mind of a billionaire business person for a moment: If you had a highly profitable product that locked your customers into a proprietary standard, would you ever willingly give up these guaranteed profits and open the system up to outside competition? 

Most would quickly say "no".  But last week Steve Jobs said "yes".  Jobs is willing to give up monopoly profits because he recognizes the power of the Challenge Dividend, and its capacity to make even more money for Apple, and more happy consumers, in the long run.

In an open letter to the Big 4 music companies (Universal, Sony BMG, Warner and EMI), Jobs boldly suggested that the industry end its obsession with copy protection schemes (aka: Digital Rights Management, or DRM).  It is remarkable that Jobs is choosing to blow apart a business model that he helped create.  Apple helped create the DRM and iTunes store that has powered a modest resurgence in music, and the company is the 800lb gorilla in the music download marketplace.

While it seems Jobs should be happy counting the money from iPods and iTunes, his open letter sheds light on "unfair" limits on consumers rights and Apple's competitiveness.  First, the music industry is already selling millions of songs per day via a completely unprotected format - compact discs - which are easily ripped to computer hard drives.  According to Apple, 97% of music in iPods is unprotected. 

Second, consumers are growing increasingly frustrated with the protections placed on music they buy on iTunes and other proprietary systems.  With iTunes, each song can only appear on five devices, and this can be used up fairly fast when you consider that households upgrade computers and iPods every year or two.  Add in work laptops and kids' iPods and suddenly honest consumers are in the position to have to re-buy music for which they expect lifetime use.  Further, many of these devices will not play music from other systems.  My Tivo, for example, can play MP3s from my computer but doesn't recognize iTunes' format.  For Apple, this could mean consumers begin to avoid iPod upgrades and embrace illegal downloads (Napster 2.0).  Today's profitable monopoly could be gone tomorrow.

Jobs would rather embrace the Challenge Dividend than focus on maintaining power over his and record labels' customers.  Today, a significant chunk of Apple's R&D effort must be put against keeping its copy protection software one step ahead of hackers.  Imagine if those resources could be spent against improving iTunes software instead?  Jobs knows that the latter path will actually grow sales by improving consumers' lives.  And he is willing to jump into the Challenge Dividend world by putting his own profits at risk.

Unfortunately but expectedly, the music industry reacted with its own open letter rejection of Jobs' proposal.  The chairman of the Recording Industry Association of America, Mitch Bainwol, insisted that DRM protection is necessary to reduce rampant piracy, and suggested that Apple license its protection platform to all comers.  But Jobs rejected this measure because it would put the company further into a position of defending itself against eager hackers and angry consumers.

We will have to see how the market develops.  I will admit to being a consumer on the front lines of this battle.  I'm on my 5th of 5 acceptable devices for dozens of songs I have purchased through iTunes, and I continue to look for ways to unlock Apple's DRM so that I can use my music as I see fit.

(Hint: Try this. Worked great for me!)

Death of the SuperBowl Ad

A few loyal readers last week asked me to weigh in on the annual SuperBowl Advertising competition that still seems to have some legs eight days after the game.  I planned to leave just a few short comments, but as I dug around the news a little bit, I found three big warning signs that suggest the SuperBowl Ad is on the road to ruin...

"The Ads Were Bad This Year" - I heard this from three friends, and I remember hearing this in recent years as well.  The only data I could find is that traffic to SuperBowl advertisers' web sites was down 62% from last year.  I think it's hard to impartially judge ad quality from year to year.  In my opinion, the ads are probably much, much better than they were, say, ten years ago.  The hype around the "contest" of advertising is still relatively new, for example.  And my bet is that this contest pressure results in a better crop of ads if you sat in a room and watched a reel of them back-to-back. 

But while the ad agencies have been honing their skills, the amount of quality content around them has also increased at an amazing rate.  Professional movies and television has gotten consistently better in order to capture viewers attention in a crowded market.  Not to mention the supply of content via people with video-cameras and YouTube.  Some of that content is incredibly strong.   Net, the bar is higher for content quality, and maybe the :30 ad has reached its limit.

Pressure From Interest Groups. 2007 might be regarded as the year that special interests alone killed the SuperBowl ad.  Snickers pulled its entire multi-media campaign because gay anti-defamation groups protested an obviously harmless male kiss.  General Motors just decided to edit a "bet the company" ad to remove a scene where a robot throws itself off a bridge.  Voters on ESPN.com rated it this ad the best of the bunch, but the company couldn't defend itself against suicide prevention groups.  David Kiley at BusinessWeek put it best in suggesting that a story about GM quality has been warped into one of suicide. 

Starting with Janet Jackson and continuing today, the SuperBowl has become a scene where interest group leaders are glued to the set together to see if they will have an opportunity to gain attention by exploiting advertisers gaffes.  Now advertisers who dip into the SuperBowl will be ultra-wary of offending niche groups, and this in turn will weaken the creative product.

Outside Distraction.  Traditionally there is a two-week ramp up of hype around SuperBowl ads as well as the game.  It becomes a time when the news media helps build the buzz and advertisers leak secrets and scenes about their plans for the big game.  This pre-game hype helps drive the return-on-investment which is well into the millions for each brand involved.  But this year, Aqua Teen Hunger Force hit the memeosphere just days before the big game.  Media attention stayed on advertising, but focused on the negatives of guerrilla marketing.  Talking heads were rambling about extreme marketing tactics of a Cartoon Network show rather than the SuperBowl of advertising.  My buddy Pete Blackshaw at Nielsen BuzzMetrics shows that there clearly was a shift in attention.  And the Halftime show continues to be a show-stealer post-Janet.  This year there was a bit of a dust up around the silhouette of Prince holding his guitar - a "demonic guitar phallus" according to the Stephen Colbert.

At the end of the day, I think the annual SuperBowl Advertising contest is increasingly unproductive.  The ability to make a bigger impact within a :30 to :60 time-frame has probably hit a wall.  And the rising cost plus shrinking audience reduces the ROI available for winners.  Just a few years ago I was at P&G working on television ads for Mr. Clean, including one for the company's own SuperBowl contest.  As we niggled endless rounds of video and dumped more and more dollars into the film, it felt a lot like rearranging deck chairs on the Titanic.

Bigger picture, marketers around the world are under the challenge to create marketing that consumers will accept, and then try to convince them to buy products or services.  The spectacle and eyeballs around the SuperBowl is one way, but there are countless alternatives that offer more value to the consumer and companies.  If any reader out there is interested in such alternative successful approaches, call me at my day job.

Curbing Government Traffic

Many, many times in this space I have written about the power of openly available data to put pressure on action and drive challenge dividends.  Last August I covered the building support behind regulation that would create a searchable database of all federal government spending.  Last week I found an article in the New York Times that presented data regarding government employees as the cause of congestion in New York City streets.  It's a pretty fascinating data point that I hope drives changes.

New York City is currently evaluating competing proposals - itself a Challenge Dividend win - for strategies that the city should undertake to prepare for the next 25 years of city business and population growth.  A key step has been a significant effort to collect data about existing traffic volume and issues.  The city has commissioned several studies (one great business-perspective is here), which are bringing some interesting data to light.

Examples of the data include the fact that most Manhattan drivers (53%) actually live in the five city boroughs, rather than being mainly comprised of New Jersey "B&Ters".  Many of these drivers reside on the outskirts of existing subway lines.  This is powerful rationale for an investment in subway extensions.

But one of the most powerful data points is that 35% of government workers in Manhattan drive to work.  This compares to 14% in the Finance industry.   It means thousands of extra cars on the roads.

The reason: free parking privileges issued liberally by government bodies.  This data is bound to anger many tax-paying, subway-riding Manhattanites, as it confirms a theory of favoritism that has existed in the city - and nation - for some time.  Not only are taxpayers forced to ride the bus or pay hundreds of dollars for parking themselves, but their tax dollars are going to pay for free parking for the thousands of government workers.

To be fair, free parking benefits also come to construction and utilities businesses, who work on streets and construction sites.  But at least there is some rationale here.

We will see if these government agencies respond to this new light shed on their perks. 

Switzerland: My Kind of Neighbor

A few days ago I wrote a post about the competition to cut taxes that is happening within U.S. states.  At the end of the post, I included a small link to similar competition among Cantons in Switzerland.  What I missed was a developing controversy in which Switzerland itself is now faced with angry demands to increase taxes by the European Union and its member countries.  While the cantons of Switzerland compete with each other to lure businesses and individuals, they are all winning against the broader EU surrounding it.

There are few interesting Challenge Dividend lessons here:

First, this helps prove once again that heated competitive challenge can create a bigger pie for all to share.  I great example I wrote about last year is the restaurant market in Sonoma.  In this little town, some of the best chefs and restaurateurs in the world come to this little town in California to fight tooth and nail for tourists' dollars.  As they compete, they lure more people and the food and service excels.

In Switzerland, the cantons compete head-to-head vigorously, but as they do, they all draw more people and companies from throughout Europe.  And the tougher this competition gets, the more attractive they are to these outsiders.  It is a classic non-zero-sum game.

This brings us to the second lesson: centralized organizations need an outside challenger to keep them sharp.  The European Union was formed to help its member nations compete better in a global marketplace.  They agreed to eliminate trade barriers, adopt common business regulations and currency, and share investments in technology, for example.  These measures have helped the members drive efficiency and competitiveness. 

However their union also decreased their ability to reap a Challenge Dividend.  The member countries are bound by restrictions on what they can do to improve their economies.  And overall, the EU is lagging behind the U.S. and Asia in GDP growth. 

But Switzerland represents a pocket of challenge right within their midst.  As covered by the BBC recently (thanks Cato), EU politicians claim that Switzerland is a bad neighbor because it is luring businesses and citizens with low taxes.  Today, they mainly claim unfairness.  But the Swiss impact might grow to a point where the EU is forced to improve its government efficiency and reduce taxes in turn.  (Probably the only thing stopping Switzerland is its small, mountainous land mass - a tough challenge to overcome!)

For me, the larger takeaway is that any central organization is at risk of losing its Challenge Dividend.  While it is often competitively smart to centralize, such organizations should either closely limit the rules it imposes and/or build "pockets of challenge" that live outside and compete with the larger body. 

In Sonoma, for example, it is smart for the city government to establish kitchen cleanliness guidelines; but not to establish rules on which kinds of items should be allowed on the menu!

Lawsuits are the Fashion at Levi's - UPDATED

The Challenge Dividend Quote of the Week comes from the Against Monopoly blog in response to a recent New York Times article that shows how the Levi's brand is losing the fashion and sales wars while resorting to a highly aggressive legal strategy:

"Some investment advice: when a company's main business if filing lawsuits, sell short."

The article tells a fascinating story of how Levi's has bullied large and small jeans makers alike for decades in order to protect what is claimed to be valuable trademarks.  The central trademark in question is the swooping "M" shape of denim stitching across the back pockets.  Due to its aggressive legal strategy (40 full-time lawyers scouring stores around the world), it seems that nearly every jean maker in the U.S. has felt the wrath of Levi's and been forced to pull product off the shelves.  Often it is not worth the effort to fight the company, and fashions change so often that whatever is left on the shelf would not sell anyway.  So the big and little guys give up without a fight.

But while Levi's has been winning the war on trademark protection, it has lost the battle for revenue growth, global equity leadership, and trend setting.  No amount of legal wrangling could keep the company from suffering a 40% decline in sales since 1996.  And dozens of closed factories and layoffs of half its workforce in the past five years are tragic testaments to the wear and tear of a 133-year-old icon.

The company's biggest fashion blunder came in the mid-90s when high-end boutiques began to offer new styles from brands like Von Dutch and Lucky at price from $200 to $400 (Full disclosure, I'm a Lucky wearer).  Meanwhile, Levi's decided to move toward Mass Merchants like Walmart with prices in the $20 to $40 range.   Denim is at a fashion high point again, but Levi's is on the border of bankruptcy.

It is very sad to see an icon crash to the ground.  I remember taking over marketing for the Mr. Clean brand at P&G only a few months after the company nearly divested the brand.  But our team and senior management believed that the "Big Guy" still had spirit.  Instead of suing our competitors or making small formula and scent changes, we brought consumers a treasure trove of innovative new products - like the Magic Eraser, AutoDry Car Wash, and Magic Reach.  It was consumer-focused innovation and high-revenue products that saved Mr. Clean.

The Levi's story is echoed in several other declining businesses and industries.  The most notable is the recording industry, where the RIAA continues to sue its listeners.  Instead of embracing new technology as an opportunity, the industry is competing against the people that feed it - and who are now moving to other media.  In addition, Netscape and Sun Microsystems sued Microsoft instead of focusing on new ways to compete and win.  Now they are barely blips on the technology radar.

So take the Challenge Dividend investing advice: Go long on the companies in highly competitive markets that focus entirely on pleasing their customers.  It's the only way to win as an investor and consumer.

UPDATE: Good article in The New York Times 4/5/07 about the importance of copying in the fashion world.  It references a study by law professors Kal Raustiala (UCLA) and Chris Sprigman (UVA) which shows that fashion moves forward because of rampant copying and lack of trademark or patent protection.  In a way, the copying is a signal to the market that something is coming into fashion - "If all the designers are showing baby doll dresses in the spring of 2006, then there's a good chance that is what everybody will be wearing by the summer of 2006."