MARGIN SHARE
Marginal Cost Inclusivity as a Possible Answer to Inequality?
Executive Summary
We introduce MARGINSHARE, a change in the economy that may substantially lift disposable incomes of approximately 60 million low wage workers in a self-sustaining manner. The
program combines financial inclusion and education to support the socioeconomic growth of its participants. It encourages the good will of corporations to offer various goods and services at slightly above their marginal cost to the qualified program participants utilizing dynamic pricing models. The viability stems from the assertion that the program’s data analytics could result in minimum market cannibalization for the partnering corporations and could lead to an overall increase in some net revenues. An example is Amazon’s current offering of the Amazon Prime service at half price for people on food stamps We are in the early phase of ideation and we greatly appreciate any and all constructive criticism.1 Introduction
Inequality - both wealth and income - is one of the most pressing and significant issues for the
United States to collectively solve. Even more concerning than the relative inequality, staggering
11.8% (≈ 38.1 million people) of Americans were living in poverty in 2018 according to the most recent 2018 U.S. Census Bureau report. Furthermore, many believe the COVID-19 pandemic has been exacerbating this problem, with 52% of lower-income American adults reported to have lost their jobs or taken a pay cut due to the pandemic, as opposed to just 32% for upper-income adults.
There have been a number of attempts, from both public and private sectors, to close the gap. As is the case in many other nations, the United States federal income tax is progressive. Also, the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is a federal Department of Agriculture program that supports Americans living in poverty by providing them with credits they can use to purchase food with an average monthly benefit of about $200. The federal and local governments also fund housing, health programs and low income tax credits, programs continually strained by limited finances.
Corporate America has been consistently challenged to address the issues of inequality. Tra- ditionally, companies have made donations or sent volunteers to community causes. However, this approach has not
yielded the broad reduction in income and wealth inequality, as corporate resources are limited. Many in Corporate America have recently formally adopted the “stakeholder” view of their role in the society somewhat different from the prior “maximizing shareholder value” approach. (US Business Roundtable 2019 Statement on the Purpose of the Corporation). More commentary about corporations’ role can be found in thought pieces such as that released by McKinsey in June 2020 (The Value of Value Creation). Moreover, large voting shareholders have written letters to CEOs reminding them of their larger place in society. (see letter by BlackRock CEO Laurence Fink 2019 – A Fundamental Reshaping of Finance). And in June 2020, the cover story of conservative Barron’s magazine was “The High Cost of Inequality - Why the widening Wealth Gap is Bad News for Everyone.”
MARGINSHARE attempts to remedy the problems of pre-existing efforts to solve inequality by leveraging the full infrastructure of a company to do what they do best in creating value for targeted consumers but without additional net cost to the corporation or an impact on their profits.
2 MarginShare
MARGINSHARE is a program with the two main pillars of increasing disposable income and education to motivate and inform low-wage workers to enable socioeconomic mobility. The program could also extend to those with limited Social Security benefits and the disabled.
2.1 Mechanism
The program applicants must be low-wage workers who have had a job in the last twelve months. This work requirement is to reduce the stigmatization of the program as not a traditional welfare program and more aligned with the perceived values of corporate actors. Though more extensive research and modeling are required to come up with precise figures, the income cutoff would be around $45,000, depending on the family situation, and a cutoff for wealth also will be implemented. The applicants will be required to allow access to this information for verification. Those on Food Stamps, which has a work requirement, would automatically qualify.
Once enrolled, each participant will have access to discounts to selected products of the partnering corporations. Ideally, we would generate sufficient interest to partner with companies in a number of different sectors that will benefit the low wage earners the most, e.g. groceries, telecom-communication, travel, utilities, news, and entertainment. To prevent abuse, the total monthly credit that could be applied for discounts may be limited to, say, $1,000 per month, though this will likely vary based on the participant’s standing in the program.
To maintain good standing in the program, the participants must regularly show progress in the personalized educational core of the program. The program could additionally reward participants who show motivation in the educational core by increasing the discount rates and/or increasing the monthly credit limit or other means.
To apply for the discounts,. some combination of a participant card (like the SNAP food stamp program), phone number with special pin, and our website/mobile application would likely be sufficient.
Big data will be employed in a dynamic fashion. For example, some companies may only participate with their excess inventory. Most others can produce additional goods at marginal cost but they might limit their offering quantities should a substantial increase in production require additional infrastructure spending. Each company will participate based on their own unique circumstances and cost structures with their offerings and prices continually revised and reflected in the apps of the participants. Companies would have the information to determine if substantial cannibalization is occurring and make dynamic adjustments. Cannibalization is when the consumer would have otherwise bought the company’s product at full margin, which could impact corporate overall profits. Companies might even use MarginShare to better manage their risk for excess and new production planning by knowing that such production could be funneled through the program rather than through loss losing product fire sales.
2.2 Education
Each participant will have access to the MARGINSHARE website and mobile application. In ad- dition to their function in helping participants track their spending habits and smoothing out their shopping experience (e.g. they will be able to scan the QR code on the MARGINSHARE logo on products to see the discount rate), these apps would be central to the educational core of the program.
Through our website and app, the participants will have direct access to local community sup- port and jobs programs. A series of short video lectures would be offered on issues most relevant to our participants, e.g. budgeting, stress reduction, family planning, childcare, insurance. Even English lessons could be offered to first-generation immigrants, since for them, language is often one of the biggest hurdles in finding an ideal career. As the number of graduates of our program increases, we might potentially be able to implement a mentorship program between graduates and participants though moderated chat / help rooms.
MARGINSHARE will utilize machine learning to personalize its educational core, using each participant’s financial and other information as well as their responses in the app. This personalization, as well as other potential usage of the information accrued on participants, will need to be balanced with privacy issues.
While most CSR programs focus exclusively on the social responsibilities this concept also emphasizes the “responsibility” aspect on the part of the participants. MARGINSHARE operates under the belief that progress on solving the problem of inequality can only be made when the responsibility extends, to a certain extent, to everyone and not just the government, the wealthy and corporations.
2.3 Self-Sustainability
The marginal cost of production is the cost of producing one additional unit of a commodity, excluding the fixed overhead cost. Different companies have different marginal costs, e.g. phar- maceutical companies have high fixed costs but nominal marginal costs in manufacturing one more pill whereas gas stations have high marginal costs in delivering an additional gallon of gas. A book named The Zero Marginal Cost Society by Jeremy Rifkin in 2014 explores the changing nature of production in the digital economy and argues the trend towards a low marginal cost for most goods and service.
MARGINSHARE will mainly target companies with a substantial marginal profit that also will benefit from a wider customer base, i.e. ones for which selling their products and services with a smaller marginal profit to our participants will not lead to significant cannibalization, or a decrease in their total profit. Most companies would seem to be able to consider this opportunity.
The value proposition of MARGINSHARE to a potential partnering corporation is manifold. First, and perhaps most important, is providing the corporation the opportunity to be leaders in what we hope would soon become a widespread movement to sustainably reduce inequality. It would also potentially benefit in the event that the MARGINSHARE brand gains recognition and attracts non- participating consumers to purchase its products to support this national inequality cause. The success of the buy-one, give-one program by the popular footware company Toms Shoes, in which Toms gave away a free pair of shoes for every pair sold, demonstrates this possibility. Second, by tracking the participants’ spending habits as well as their progress on the educational core, MAR- GINSHARE identifies participants who have engagement potential, and by rewarding them with heavier rates of discount, the partnering corporations will be deepening their customer base by
targeting consumers with the chance of becoming loyal customers even after they graduate from the program. By having the MarginShare outlet to this population, companies may not need to run as many discount sale programs that can adversely impact their brand image.
MARGINSHARE may charge the partnering corporations a small percentage fee per purchase subtracted from their products’ margin through the program to ensure program sustainability. In order to continuously address the concern of cannibalization, MARGINSHARE would regularly use the up-to-date data on the participants’ spending habits to help companies refine the statistical models to ensure that cannibalization is a minor and a controllable issue for the companies.
3 Conclusion
3.1 Further Thoughts
This program addresses the macroeconomic issue of decreased demand in the post COVID-19 economy as it will supposedly increase production, with many in the supply chain maintaining their traditional margins. For example, a bike manufacturer may have a marginal cost of $30, and participants may buy the bike at $35, but $30 is still pumping into the larger economy.
The big data system architecture and interface issues are similar to coupon programs that are currently operating through certain grocery chains. While retailers like Amazon does not have much margin to share, their vendors often have large margins and, should Amazon become one of our partners, we would be able to implement MARGINSHARE identifiers on Amazon’s various product pages for participating vendors. Additionally, the data, the app and its educational component offer the local social service sector and foundations higher access to their target market by providing additional incentives for participation toward their program goals.
One salient point about the program is that the “redistribution” of wealth is less direct and less apparent than most other attempts to solve inequality. No agent is directly giving up her personal interest, and even the companies, arguably, have some financial incentives to participate in our program. One could even assert this dynamic cost pricing model could eventually be the future of consumption spending as a feature of a more equitable society, which might be another reason for companies to participate!
3.2 Further Research
As we are still in an early stage of development, many questions remain to be answered. Some of those questions are presented below:
1. Can a movement be launched by stakeholder corporate groups such as the Business Roundtable to encourage corporate participation? Who and how do we get to these key influencers? An additional strategy might involve the filing of shareholder resolutions by investors to encourage boards to engage in the MARGINSHARE cause. One of the authors was chairman for many years of Calvert Funds, which filed hundreds of shareholder resolutions with Fortune500 companies, with almost half being successful. (Most of the successful ones resulted in the resolution being withdrawn as the companies agreed to implement the resolutions.
2. How much will a participating family save at various budget levels? MARGINSHARE will probably not save much on rent but would save on consumables, including food and utilities, and some durables such as refrigerators and computers. For large purchases, the mobile application may also direct participants to the availability of previously owned items, such as reputable used car dealers with reasonable financing. Current guesses are that savings might be in the $700 to $900 per month. In contrast, the federal SNAP program results in about $200 per month benefit.
3. How do we reach the target market? The 30m people on the SNAP program might automatically qualify. We could target certain tight-knit social groups such as churches and community groups, social services agencies and point-of-purchase grocery stores among other. Word of mouth is the critical driving factor as the benefits of the program become evident.
4. How exactly do we make the system costs of the operation sustainable? Perhaps a 2% revenue fee could be included in the marginal cost calculation. Other revenue opportunities will come from the monetization of the data accrued through the program, such as consumer research studies and support for special product launches.
5. More research is needed to model the marginal cost of consumable items, currently guessed to be at least 50% of current retail prices. Again, each company has unique cost structures and would participate in respect to their pricing circumstances and the flexibility of their distribution chain.
6. MarginShare is the placeholder name for this concept as it is first need to be presented to corporations and thought leaders. A more public name and logo eventually need to be developed. For example a name like “BSHARE” – for Business for a Sharing Economy would give kudos to the business community on whose goodwill the project depends.
3.3 About Us
The principals of MarginShare are Wayne Silby, a pioneer in the impact investing movement who founded the $20B Calvert Funds, and Peter Chang, a recent Harvard computer science/physics graduate. MarginShare is currently conceived as a non-profit organization with a cost-plus management contract. The principals are very open to collaboration and /or have others drive MarginShare from an idea to the marketplace.
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