Special Discounts - a good method to grab undecided customers

Recently I was shopping for a resort to host my company's upcoming retreat. The specification was simple: somewhere beautiful, requires a short plane ride and all inclusive. The resort that I had in mind was Tanjung Rhu Resort in Langkawi. I started inquires about the prices as well as the flight tickets.

Within a space of 4 hours, I have not only committed to the Resort but also booked the flight tickets through MAS. This is not the normal speed for company type purchases. So why the difference?

Special Discounts. Both the resort and MAS suddenly offered a special deal to the company that is nearly 40% and 70% lower, respectively over the standard price. The catch is; the company must commit within 4 hours or the special rates will disappear.

In this case, although I knew what I wanted, it is still not a foregone conclusion that I will go to Tanjung Rhu. Cost matters considerably. Nevertheless, the "special discount" by both the resort and MAS was too good to resist.

On reflection, I realised the power of "special discounts". Although your margin drops considerably if it is offered, the positive angle to it is that you will get a big booking. Sometimes it is not the marginal profit that matters. Bottom-line profit and effective use of company assets should also be looked into.

In the case of the resort, they have sunk cost in terms of the rooms. If a big booking comes in, it makes sense to take up the booking as it ensures a good proportion of the rooms will be occupied. Keeping strictly to the standard rates reduce your potential to monetize your operating assets.

In the case of MAS, taking a big booking now ensures that a number of seat on their plane will be taken. Now, the other seats can be priced at standard rate without the need to offer any further concessions.

Net position - Revenue and profit gain!

Bond Index Monthly Report - January 2011 - Returns in the Malaysian bond market were mixed

Returns in the Malaysian bond market were mixed. Some bond classes fared better while others did not. Government Bonds improved when compared to the returns registered in December 2010 but Corporate Bonds returns moved in the opposite direction. Due to the concerns of the market of another rate hike by BNM, the yield for the bond market has been pushed higher. However, the status-quo in the Malaysian Overnight Policy Rate by BNM on 27 January 2011 did help reverse the hawkish market sentiment hence reducing the yields of the Government papers. Although this has an effect of improving the returns for government bonds, the same has yet to be seen for the corporate bond which tends to lag the Government papers.
Bond Index Monthly Report - January 2011; by Bond Pricing Agency Malaysia

"Betting on election plays" - the power of rumours and market movement

In today's article by The Edge Daily, titled "Betting on election plays", it states the following: "But closer to home, another acronym — GE13, the 13th general election — may well shape up to be a more exciting catalyst for investors on the local bourse......Indeed, the election play is expected to be one of the main investment stories this year and analysts are already betting on which stocks will ride on the theme."

It goes on further to state the following : "...market rallied in periods prior to previous GEs, with gains of at least 9% in the two months before polling day during the 1999 and 2004 elections."

This is a very interesting fact. If one can already prove to the market of such statistics, under efficient market hypothesis, such phenomena should not be seen again as the market players would have acted on the information already.

The only explanation is the most obvious: Market players, especially the retail players have very short memories. The advantage will always be to institutional investors. They will always act first and gain the bulk of the profits as retail players starts to catch up with the trading strategy.

In a nut shell: institutional investors will use the GE13 as an opportunity to milk the retail investors.

Politics and the Economy: a boxing match

The events in Egypt presents a very good case study on the effects of politics on the economy. Since the purpose of this blog is to discuss economics and finance, I would not dwell on the political aspects of the events but instead will look at its implication to the Egyptian economy.

Egypt is well-known for the tourism industry. But not a lot of people know that it also has a very deep processing industry due to its location as well as cheap labour. Many processed food found in the Middle East comes from Egypt.

How did the the protests effectively caused the whole country to grind to a standstill? Was there widespread bloodshed?

All the protesters needed to do was to force the Egyptian Stock Exchange to close. This has a knock-on effect to the banking sector. Since money is the life blood of any economy, the effect of just closing the exchange and banking sectors was enough to cause a nation to stop on its track.

Economic sabotage?