Wednesday, 1 April 2009

The Apprentice series 5: episode 2

10:30 Next week looks much better. More interesting task, more variety of approach, and a more interesting line of attack from Sir Alan. Come back and see me then!

10:28 Rocky is much more popular with the audience than with the panel (or with Sir Alan). They all love him. He does get some nice cufflinks - probably a better return on time spent than most of the contestants will get.

10:26 Ben thinks Rocky "couldn't pick shit out of a boot if the instructions were on the heel". Is this a whole series of neologisms?

10:25 Nick spots the game theory of the intrateam criticism - of course he is quite expert at it.

10:23 The winning team are getting their fair share of criticism, apparently for not winning by enough.

10:20 Adrian Chiles "wants to cringe his head off". Never heard that phrase before.

10:15 You're Fired is not especially interesting today. Mainly we learn about the foibles (some of which are astonishing) of James, and that people think Rocky is a cute little boy.

9:59 Time for BBC2, but what are the economics lessons from this week's episode?

First, that the G20 are apparently close to a deal on fiscal stimulus. Sorry, that's the news.

The rest of the lessons are more about business practice than economic theory, but we can salvage something from it.
  1. Price discrimination: tough to get right
  2. Search theory: matching your offer to the market is more efficiently done by inspection than by testing the offer and failing
  3. Firm structure and communication: a strong culture can substitute to some extent for lack of developed relationships in an organisation. If neither are present, the organisation will be damaged by internal competition
  4. Non-material utility is critical: the packaging of the food and the communication of the offer are as important to creating value as the underlying commodities.

9:58 An information mistake from Howard: he just bitched about the rest of his team in front of them, instead of behind their back like he's meant to.

9:57 James isn't popular in the house - among the guys at least. The girls seem to like him a bit better.

9:56 One of those delicious moments where Alan obviously dislikes the two survivors more than the guy he fired.

9:55 A tortured metaphor and Rocky is out.

9:54 Decision time? Rocky is criticised for not measuring up to his potential. Howard runs ten pubs, and didn't take enough initiative. James communicates badly but "can't be a complete plonker" because of the jobs he's had.

9:53 Rocky has never had a job since leaving education - he's run his own business the whole time. Therefore I have to sympathise with him.

9:51 James was in charge of running the evening event, which is pretty scathing. But I feel Rocky is much more responsible for this fiasco.

9:50 A major price discrimination problem. The negotiator started at £60 and ended up at £15, but claimed to be offering the same product for both. It's very difficult to run price discrimination while offering exactly the same product. Amazon got into big trouble for this a few years ago.

9:49 Rocky seems to have no ability to estimate food quantities - ridiculous for someone who is meant to run 15 sandwich bars.

9:48 More or less everything went wrong in the evening. Most of all it was tacky - a big mismatch of brand and market. Professional City firms are pretty conservative. I'm a bit surprised there is no discussion of lunch.

9:47 A discussion of the big mistake on pricing - Nick agrees with me.

9:46 Now we're getting a bit of an argument. And a cost breakdown. The togas were surprisingly cheap, so the problem was in the cost of food.

9:45 Good fiery defence from James. But not a defence of the team or Rocky's performance, a defence of his vote for Rocky as leader.

9:43 Another telling inference from the editing: we have hardly seen any of the boys' team except for team leader Rocky. It surely has to be him who's fired. At least the team and management incentives have been aligned.

9:41 OK, so the editing was probably a bit unfair to the girls. Their lunch couldn't have been that bad since they made £200 more than the boys. Rationality alert: this was obviously such a one-sided task that the editors had to distort it to keep people interested.

9:40 Empire (the boys): £821 spent, evening fee of £750 also cut in half: total sales £661, making a loss. Alan is not happy!

9:39 Some figures now. Ignite (the girls) spend £354.77, were meant to get revenue of £750 for dinner but the client clawed back £250 for low quality. Total takings not bad at £1006.20. Profit of £650-odd.

9:37 And the boardroom. A bit of sarcasm from Alan about the themes, but no details of the results yet.

9:34 The girls' last-minute improvisation with the menu hasn't gone down well. If there's an economic lesson from that, it's about using your intellectual capital, not trying to innovate when the situation doesn't call for it.

9:33 The boys have their own problems - the canapes are cold, and the togas are not going down well. The in-fighting seems to be boiling over a little quicker in that team.

9:32 Are canapes a Giffen good, perhaps? More food is less valuable.

9:31 The girls' food does not actually look very mean - indeed the canapes are too big to eat.

9:30 Wow. The boys have certainly gone for a distinctive brand. They are wearing togas and serving food onto the gold tables next to their Greek statues.

9:28 More criticism for the girls - they have been too mean with the ingredients. It's not completely clear whether this is a result of their procurement or just the editing.

9:26 The boys are selling at Liverpool Street station - seems like a decent choice. And on Upper Ground, where I live. To be honest I am surprised that anyone is on Upper Ground at lunchtime, but they seem to be doing OK. The perils of local knowledge.

9:25 Oops - spoke too soon. One of the salads had a hair in it.

9:24 The girls' lunch is being criticised, but the clients are at least eating it. Better than not selling any at all.

9:23 The boys' lunch actually looks quite nice - apart from the peanut butter sandwiches. Perhaps it's one of those products that you can't sell verbally, only on the shelf. There are lots of cognitive biases to do with visuals.

9:21 The girls are cutting costs. Are they overreacting to last week's overspend? Premium pricing is a big opportunity in the right market - 20p of extra ingredients can increase the perceived value of a sandwich by £1.50.

9:20 Neither team has full faith in their leaders. A few pre-emptive markers going down in case of boardroom.

9:18 Lots of signalling this time, but in the wrong direction: they quoted £60 to the client who almost burst out laughing. This could have been an opportunity to take advantage of anchoring, by fixing a high price in the client's head and then negotiating downwards; but the lack of credibility in the initial offer disrupted this opportunity.

9:16 Now it's the boys' turn: their market research has turned up a price of £50 per head for dinner. However, they are serving canapes.

9:13 Miscommunication within the girls' team I think: Kate, who's on sales, has got completely confused about what's on the menu. The client has lost faith. Rationality check: the market for catering is not an efficient market; there's information asymmetry, and so the supplier needs methods to signal their quality.

9:12 No obvious irrationality here - just bad product choice. I need to watch this again afterwards and pin down exactly what the boys' team leader claimed about his catering experience.

9:11 The girls have lunch orders from two offices, the boys none. Shocker!

9:10 The boys have started working on their evening event (a dinner function) and picking out Greek statues to decorate the room. I guess the narrative structure of the day is going to be the girls making lots of money on lunch, and the boys making some of it back on dinner. The girls should win.

9:08 Yasmina, leader of the girls' team, starts by defining the required gross margin (70%) and picking a menu that's simple and cheap to make. The boys decide on an "Olympic 2012" theme with sandwiches from every country, including peanut butter sandwiches for the US. I don't think I need to tell you who my money's on.

9:06 Both teams have picked a project manager with experience in catering. Good start - these tasks are not usually about innovation and bringing new ideas from outside; familiarity with the industry makes a whole stream of mistakes less likely, which will save a lot more money than you'll make from any new concept.

9:05 I can already see a fallacy on its way. A common assumption is that selling into a wealthy market is easy, because people who have more money will spend more. The problem with this theory is that there's also more competition in wealthy markets. Let's see if they fall into that trap.

9:02 The teams have to supply a catering service to people in the City. Lunch then an evening reception.

9:00 Welcome. I've just run back from Westminster (where there seems to be some kind of function going on) to be with you. A quick jog along the river. Remember that Peter Jones show, Tycoon, from last year? Set on London's exciting South Bank? I live next door.

1 comment:

yadu said...

re price discrimination: i wonder how much of the price sensitivity/insensitivity is because the 'clients' know they are in a TV show?