Getting into e-commerce is like buying a backyard pool: It looks real easy on the packaging, but when you start setting it up, you’ve got electrical, landscaping, insurance issues and a host of others that seemingly pop up out of nowhere.
With e-commerce, you’ll have to consider security issues, legal issues, network issues and compatibility, all the way down to nontechnical issues such as whether your nontechnical sales people know how to use the ’Net. Plus, you’ll have to consider supply-chain implications, such as what impact selling on the ’Net will do to your existing methods for getting product to market and what impact that will have upon your vendors, suppliers and customers.
The moment you begin thinking about integrating e-commerce and existing sales, break out the checklist and start at the top.
My company has an external sales staff and I’m considering buying them either laptop computers or handheld PDAs to use in the field. Is there much difference between the two?
Yep. PDAs have limits. Laptops are full-functioning computers, and some of them are really light, too. The question to ask is, “What are we going to do with this tool?”
If you’re just going to use e-mail applications, fPDAs will work fine. If your staff’s going to function on the road, just like you’d have them do at headquarters, you’d better give them laptops.
In the future, however, there will be little difference between the two. You’ll probably use your wristwatch to connect to your network. Think Dick Tracy, only cyber.
My customers are complaining that our company Web site is too cumbersome. We want to retool it, but don’t know where to begin. What should we do?
Look at your Web site from a home computer connected with a 28.8 modem. If you fall asleep waiting for pages to load, unplug it, fire your developer and start from scratch.
Think like a customer and build something that serves the customer’s need. Forget about how the site is built. Concentrate on what you want it to do and don’t settle for anything less. Otherwise, your company’s ability to compete on the Net could be at stake.
King Hill (email@example.com) is director of marketing services of DigiKnow, a Cleveland-based digital marketing communications firm with clients ranging from Fortune 500 companies to professional sports teams. He can be reached at (216) 292-7259 or on the Web at www.digiknow.com.
TV delivered over the Internet will create a new tier of niche content. Short videos on PCs will be commonplace by 2002; digital set-top box users will spend 10 percent of their TV time on Net video by 2004, according to Nua Internet Surveys.
Plenty of coal left for Christmas
A new report from the Center for Energy and Climate Solutions finds that despite a 9 percent growth in the economy during 1997 and 1998, energy consumption dropped more than it has in 50 years.
A major contributing factor is the information economy and the efficiency afforded by the Internet. Whereas traditionally global economic growth was synonymous with massive increases in energy consumption, the dawning of the technological era could mean this is no longer valid.
Because the Internet uses existing communications infrastructure, it is consuming a minute amount of energy compared to other industry sectors. The report finds that this is set to continue, and by the year 2007, the Internet will have contributed to previously inconceivable reductions in the worlds consumption of energy. Source: Nua Internet Surveys.
Here come the French
French users spent an average of three hours on the Internet in October, while British surfers spent four and Germans, about five. The average American home user is on the Internet for about five and a half hours each month. When work-related use is taken into account, this rises to about eight hours per month, according to a report from MMXI Europe BV.
According to a study by Forrester Research, 64 percent of Asian-American homes are linked to the Internet, twice the U.S. national average. Asian-American families also have a higher than average household income and spend more online than any other racial group in the United States.
Bank hold-ups rising
One in five users are likely to abandon setting up a new online banking account because of time-consuming red tape and complicated deposit procedures, according to a survey published by Frederick Schneiders Research.
Some companies in the financial services sector reported that up to 80 percent of those who began to open an account online did not complete the process. Despite this, 80 percent of U.S. consumers who use online banking services prefer them to traditional banks.
Free to a good home
The number of U.S. Internet users with free ISP accounts is expected to escalate to 13 million by the year 2003, according to research from Jupiter Communications.
Almost 13 percent of the ISP consumer market will use a free service as their primary service. While this will not threaten the subscription-based model, it will introduce flexible options. As most Internet users worry less about cost than they do about fast downloading and reliability, free ISPs are viewed as more of a niche market than serious competition for existing ISPs in the U.S. According to Jupiter, free ISPs will have to offer advertisers a sharply-defined user base as they are only expected to garner $901 million, or 8 percent, of total online advertising spending by 2003.
How to speak Australian: rip-off
According to Telstra, Australias largest telecommunications company, Internet access rates in the Asia-Pacific region are higher than average because users are forced to subsidize American Internet users. While Australian ISPs have to pay to access U.S. Internet backbone providers, there are no reciprocal charges imposed on U.S. ISPs for access to Australian services. Essentially, Australian users pay to access U.S. Web sites while U.S. users get free access to Australian sites.
Competitive Media Reporting announced that new media companies accounted for $775 million in advertising in the first half of last year, a threefold increase over 1998 figures for the same period. Meanwhile, a report from Zenith Media finds that the number of e-commerce companies wishing to use traditional advertising to push their wares has fueled global ad spending beyond expectations.
In Silicon Valley, online retailers were responsible for 17 percent of spending on radio ads and 11 percent of outdoor advertising in the first half of last year. Source: Nua Internet Surveys.
Someone has to eat crumpets
A survey conducted by Cranfield Management in conjunction with Microsoft finds that 73 percent of British executives do not believe technology is strategic to the growth of their business. The survey found that, on average, British directors allocate 8 percent of their time to the needs of their customers. This despite the fact that consumer power is growing exponentially as a result of the Web.
Who needs it?
New research from Cyber Dialogue finds that the rate of Internet uptake in the United States has slowed considerably, reflecting the gradual maturing of the market in the U.S. As a result, online marketers must invest heavily in customer relationship management and customer retention schemes.
The drop in pace is not a result of seasonal aberration; rather it is because of three major constraints, according to Cyber Dialogue. The most consistent is the so-called digital divide, those adults who cannot afford to own a PC or pay for Internet access.
Second, one-third of U.S. adults believe they have no need for the Internet and have no intention of getting online. Third, a significant number of U.S. adults have tried the Internet and found they have no use for it they number 27.7 million, up from 9.4 million in 1997.
The servers are on, but nobody is home
A new report from Jupiter Communications finds that despite the critical need for more substantial customer support, the number of e-mail queries being answered is decreasing.
The survey sent customer inquiries to the top 125 Web sites in the retail, travel, content, financial services and consumer brand sectors and found that customer service failure rates are higher than last year. Only 37 percent of companies surveyed have integrated three or more customer service channels on their Web sites.
While half of shopping sites responded within a day and 40 percent of travel sites responded in one day, shopping sites demonstrated a 40 percent failure rate, up from 28 percent last year, while travel sites had a 48 percent failure rate, up from 38 percent.
Just under half of all Web sites tested, 46 percent, did not respond for five days or more, did not respond at all or did not have contact details on their site for customer queries. In the same survey last year, this figure was 38 percent.
According to Jupiter, the most frequently trafficked sites have to process upwards of 50,000 transactions per day and many are finding that fulfillment of these orders is stretching customer service resources.
The latest figures from Nielsen/NetRatings show that computer hardware sites and automobile sites are the most popular shopping destination sites for adult males over the age of 18.
The top shopping sites for adult males were Egghead.com, Onsale.com, Dell.com, Buy.com, Compaq.com, Mcafree.com, Gateway.com, hp.com, Autotrader.com and Autoweb.com.
Yahoo! sales are through the roof!
On the Friday after Thanksgiving, traditionally the biggest shopping day of the year in the United States, shopping transactions on Yahoo! were up 400 percent over the same day last year.
AOL announced that spending at the site during Thanksgiving week nearly tripled over the same week last year. Four million AOL members bought online last week and almost 600,000 of those were purchasing on the Internet for the first time. Toys, clothing, flowers and sporting goods were the products most favored by customers.
Companies hosting large Internet retail operations are experiencing a doubling of traffic every four to five months, with more than 6 gigabits of information sent per second during peak times, compared to 2-3 gigabits this time last year.
Many retail sites are experiencing site outages as a result of the unexpectedly heavy traffic. Customers are having difficulties logging into toy retailer sites and some companies are offering discount vouchers to appease disappointed visitors. Source: Reuters
Do you take Diners Club?
Twice as many U.S. adults used credit cards to buy products and services online in 1999 than did in 1998, according to research from Cyber Dialogue. While 9.3 million people used their credit cards to buy on the Internet in 1998, that has soared to 19.2 million. In 1997, 4.9 million people purchased online.
Almost 70 percent of respondents used Visa to complete their online transactions. One-third used MasterCard; 12 percent, American Express; and 8 percent, Discover.
Visa leads the field in terms of the total value of online transactions, but the survey showed that MasterCard and American Express have a higher share of dollars spent, partly because these cards are often used for higher value transactions, such as the purchase of travel tickets, online.
Targeted at small businesses and accessible from anywhere through a standard Web browser, Formsplanet.com hosts a catalogue of virtual business forms that can be customized, filled, issued and archived directly from the Web site. Far beyond paper replacement, this application service provider hosts efficient e-document technology to enable small offices/home offices to establish a more professional corporate identity without the expense of paper stationery, specialty software and server infrastructure.
Partners such as Entrust Technologies Inc. and Corel Corp. are working with Formsplanet.com to ensure that all types of documents, from invoices to time sheets to proposals, can be custom branded and stored securely in virtual file cabinets as they have never been before.
To visually enhance and customize business stationery, Formsplanet.com visitors can select from 1,000 professional-quality clip art images from Graphic Corp, a division of Corel Corporation and the worlds largest supplier of digital content.
Clueless in telecom
In a survey of 12 North American wireless carriers, Forrester Research found that 83 percent have not addressed the need for new business models and pricing structures for mobile e-commerce.
Carriers have it all wrong, said Mark Zohar, senior analyst with Forrester. The study, The Dawn of Mobile eCommerce, advised businesses aiming to compete in the wireless market to focus on developing new business models for mobile e-commerce and to review existing partnerships and pricing models.
According to Forrester, carriers investing in third generation wireless systems must look at what structures they need to put in place to deliver relevant, personalized locationbased services on thin mobile applications.
To provide the services that consumers expect, carriers need to improve their data transfer capabilities. Existing cellular networks and infrastructures need to be upgraded, and this could cost billions of dollars, according to Forrester.
The group expects business users to be among the first mobile e-commerce consumers and advises mobile service providers to partner with small device manufacturers and develop travel-oriented content to retain early users.
Talking shop with my PC
Online retailers who have not invested in customer service could end up losing $3.2 billion in sales this year, according to a report from Datamonitor. Last year retailers with no customer service support lost up to $1.6 billion in sales.
A report from Datamonitor advises businesses to invest more in customer support and less in trying to garner new clients. Rather than spend exorbitant amounts of money on
marketing and advertising, these companies should start investing in live customer service.
As the list of excuses for substandard performance on e-commerce sites this year decreases the technology is there and mistakes made last year should not be made this year retailers are hoping to turn new shoppers into loyal shoppers this season.
Datamonitor advises retailers to invest in providing live customer support in the form of instant messaging, call centers or IRC technology. Less than 1 percent of sites have live support and Datamonitor says that 10 percent of sales lost could have been saved by contact with a person.
The research company projects that by 2003, 40 percent of companies will provide multimedia customer support.
This may sound like expensive market research, but at the service level, it is as simple as knowing and being able to relate to the customer. And the expertise to do this is already in place.
Everyone is an experienced customer. You are a customer every day, every hour. You are a customer when you turn on the lights, use water, listen to the radio, grab that on-the-go breakfast thing or start your car.
But you have to take those experiences and relate them to your business: What prompts you to decide if you have a good or bad experience? What makes you happy as a customer and what doesnt?
Its irritating to compete for the attention of the service provider who is on a personal phone conversation. Apply that to your business. Because you know how irritating it is to be ignored, make it your companys service goal to provide responsiveness and caring when working with customers.
Knowing your customers means listening to, understanding and responding to their evolving needs and constantly shifting expectations. It is important to remember that your customers needs change and evolve all of the time.
A new customers needs may be much different than an experienced customers. A new customer requires more attention and an explanation of how your process works. Existing customer may simply need check-ups to show them your business respects their loyalty.
When you think of your competitors, have you ever considered which is your service excellence competition? Customers who experience superior service expect to have that experience with everyone they do business with. Therefore, you compete with any service provider who excels at providing a quality service experience, including Disney, Nordstrom or that corner grocery store that knows your customers first name, who their kids are and what sports they play.
If you examine your personal customer service inventories, your list would most assuredly fall into the five ways customers evaluate a service experience. Know what your customer expects from your business in these categories:
- Reliability Your ability to provide what is promised, dependably and accurately. This includes personal, organizational, indirect or expected promises. Make sure you know how your customer perceives your promises.
If you promise to call in a few minutes with information, what constitutes a few minutes? Does your customer think five minutes while you think 30?
- Responsiveness Your willingness to help your customers. Evaluate your turnaround time in answering questions, providing information and solving problems.
Do you set and meet deadlines? Do you treat your customers as intrusions or give the perception of being apathetic?
- Assurance The knowledge and courtesy you show your customer. Dont blame the customers for what they dont know. You must be the expert.
You and all of your employees are responsible for product knowledge, company knowledge, good listening skills and problem solving skills.
- Empathy The degree of caring and individual attention you show your customer. You must be genuine in your concern and care. Treat each one as an individual with unique needs, different attitudes, expectations and emotions.
I dont care what you know until I know that you care, applies here.
- Tangibles Physical facilities, equipment, self, work areas and service systems. Evaluate barriers, requirements, procedures and policies. Take pride in your workplace and instill pride in your employees.
Set standards of what your business should look like and how you reflect your professionalism.
The bottom line is that if you and your staff really observe and listen, your customers will tell you what they need and want from you. Just take the time to really know your customers and build a relationship.
Pam Schuck (firstname.lastname@example.org) is president of STRIV=E Training, which specializes in motivating customer service for businesses. She can be reached at (440) 235-5498.
But what Smith, CEO, and Craze, president of Western Reserve Brewing Co. do have is good old-fashioned marketing sense, an understanding of the value of hard work and a realization that even if your business has a good product, it’s worth tinkering with.
In their first three years of business, the pair has been busy, garnering local and national awards for Western Reserve’s brewing excellence. From the outside looking in, they must be doing something right.
So what can your business learn from a couple of home brewers turned pro? A lot more than you think.
Do your homework, build a plan, but trust your gut
It’s no secret that you’re unlikely to succeed in business without a solid plan. Nor can you produce a quality product without devoting countless hours to research and development. But beyond that, every good business begins with a gut feeling that something will work.
Smith and Craze spent two years developing their business plan before Western Reserve brewed its first barrel in 1997. They traveled to other breweries, including local ones, to gauge how things were done in the microbrewing industry. Now, with a bit of experience under their belts, they are in the midst of devising a new three-to-five-year plan, which Craze says encompasses a proposed expansion.
Western Reserve was the duo’s first commercial venture both came from other industries but they followed the old business school motto: When you’ve run the numbers enough times, trust your intuition.
“We had a couple gut checks along the way,” Smith admits. “When we built our manufacturing plant, it wasn’t easy. We had to lean on our passion for beer and passion for Cleveland in order to get through the challenges we didn’t expect.”
But trusting their guts extends deeper into the organization, allowing Smith, Craze and brewmaster Jeff Ogden to venture into the great unknown. Explains Steve Louzos, marketing and public relations manager, “One of our favorite sayings is that you learn something new every day ... if you’re not careful.”
Don’t be afraid to tinker with a good product
Western Reserve’s beers have received national awards, but Smith and Craze aren’t willing to rest on early success. That’s why Ogden constantly tries new concoctions that require the special touch of someone who is a healthy combination of alchemist, artist and mathematician.
“It’s critical to be consistent and use exact calculations,” Ogden explains. “Making sure batches taste the same requires spending that extra half hour or hour doing the math. But you have to look at what you’re doing, smell it, taste it and make it that way as well. If you go strictly by the numbers, you lose the creativity of the process.”
This tinkering has helped create Western Reserve’s seasonal beers, including the logo-fancy Bockzilla, which touts a beer-guzzling cartoon Godzilla on the label. Like any good company, Smith says, you have to stay on the cutting edge and continually adapt and develop new products.
Image is everything, so create a good experience
Public perception of your company normally translates into how well you really do. That’s why Western Reserve takes an active role in the community and puts its best spokespeople forward. Those two things, explains Louzos, are the drivers behind Western Reserve’s current marketing campaign, which features Smith and Craze as a couple of cartoon talking heads.
“They’re the best spokespeople for the company because of their passion for the product and belief of getting involved in the community,” he says.
And unlike larger businesses, where the CEO and president often leave the bulk of community relations to a team of well-seasoned professionals, Smith and Craze are apt to be found pressing the flesh with the public at events, letting people attach a face to a company name.
“We were at an event recently with a lot of country music fans,” says Smith, “and the people couldn’t get over how much we were just a couple of regular guys like them. They connected with us and our beer, and realized we were two enthusiasts who cared about the product.
“That’s what it’s all about for us having a good time, making enough money to keep roofs over our heads and producing high quality beer.”
How to reach: Western Reserve Brewing Co., (216) 361-2888
Dustin Klein (email@example.com) is editor of SBN.
By now, you’ve heard the tales of workers who head to the roof with baseball gloves for a quick game of catch when they hit a creative roadblock, employers who allow dogs in the office and companies where everyone has shed the traditional shirt and tie for more casual attire.
Some view these as case studies in inefficiency, but Kenneth Kovach and Gary Bunch of Cleveland-based Creative Stages argue that exactly the opposite is true. Design a flexible workplace attitude, they say, and you will inspire creativity and productivity in your employees.
“People are begging to bring in their pets and some companies are allowing that,” Kovach told a crowd of business leaders at the October Employee Resource Council’s annual meeting. “Pets and Ping-Pong do have an impact on productivity.”
But creating a casual workplace attitude, and still getting work done, is a bit more difficult than simply buying a pool table for the break room. Workplace flexibility must be carefully designed to walk the fine line between stodginess and anarchy.
Even if you’re not ready to let dogs into your office just yet, Kovach and Bunch offer pointers for creating a more flexible and productive company.
Set the tone
If you want to create a flexible work environment, take the old advice about leading by example. A relaxed atmosphere must be developed in the top office and filter down through the work force.
“Be flexible if you want employees to be flexible,” says Bunch “Don’t expect employees to just be flexible. It is not the real world.”
Break old habits
Part of shedding an uptight office atmosphere is breaking the old patterns of work that have contributed to a stressful environment. If there is not significant change in the physical part of the job, Kovach argues, employees will not buy into the shift in attitude
“As long as we have the old pattern thinking going on, we’re never going to be able to break out of it,” he says. “Our brains respond to novelty and incongruity.”
That may mean giving the boot to stodgy company meetings or changing the physical environment of your workplace to reflect its change in personality. The more change that is fostered, the more creative and productive your work force will become.
Draft some rules
Dress-down days have been adopted by many business, but Bunch warns that even the most relaxed companies have rules to make sure their office space is conducive to work no matter how at ease they want employees to feel.
“Draft some guidelines to casual clothes,” he says. “Companies often find they created a policy to create more flexibility and they’ve created a monster. Sometimes what people wear is so incredibly bizarre it makes matters worse instead of better. Obviously, you have to have some compromise. Anything goes is not the answer.”
Stoke the fire
The reality of such a fundamental change in a company’s culture is that it will not stick unless there is a sustained and concerted effort on the part of management to feed a creative approach to work.
Bunch says there is an 80 percent chance that companies that try to change their workplace will end up reverting back. If there is good communication within an organization, the odds of it reverting fall to about 60 percent. However, Bunch, who along with Kovach makes his living helping businesses become more creative, say nine out of 10 of their clients usually see long-lasting change.
“We can take it up to a 90 percent chance when we continue to come in on a regular basis,” he says.
How to reach: Creative Stages, (216) 921-0900
Jim Vickers (firstname.lastname@example.org) is an associate editor at SBN.
Those people are called entrepreneurs, and each year, the most successful among them are chosen for the most prestigious honor in business: Ernst & Youngs Entrepreneur Of The Year Award, sponsored by SBN, McDonald Investments, Bowne, USA Today, Nasqau/Amex, Kauffman Center for Entrepreneurial Leadership, CNN and CNNfn.
The EOY program was developed to recognize outstanding entrepreneurs whose achievements place them among the leaders in business.
Nominations for this years program are being accepted through April 7. Finalists will be honored at a banquet in June. Winners announced at that banquet will be inducted into the Entrepreneur Of The Year Institute at a national conference in November.
Requirements: To be nominated for Entrepreneur Of The Year:
- The individual must be an owner/manager responsible for the recent performance of a privately-held company; and
- The company must be at least two years old.
- Founders of public companies are eligible, but must still be active in top management.
- Individuals who have assisted others in becoming successful through business or academic support may be nominated for the Supporter of Entrepreneurship award.
To nominate yourself or someone else, contact Ernst & Young at (800) 755-AWARD for an Entrepreneur Of The Year nomination kit.
At one point, he pleads, Just tell me what you want. I can do everything for you! To this, ODonnell replies, If you really want to please me, go paint my house!
How many times have you been pursued by sales reps or presented with marketing campaigns claiming to offer a total solution? And how many times has a total solution been what you really needed?
Too often, businesses assume their prospects want it all at once. Here are common examples of total solution providers pushing their whole product line at the same time:
- Telecommunications companies that offer phone, cellular, e-mail, pager and voice mail services.
- Banks that advertise checking, credit cards, investments and mortgages.
- Internet service companies that promote strategy, design, hosting and fulfillment services.
The fatal flaw of offering everything
Besides the fact that it is very difficult to present many products all at once, it usually doesnt work for the customer. Customers want to test a companys ability to deliver one product at a time. In other words, they want to date before going steady.
Customers also have specific needs. There is almost always a product or service they would choose to try before others. If forced to take it all or leave it, a customer may buy a total solution. But at the first sign of disappointment, remorse will overflow.
Does this mean, then, that it is foolish to offer customers a variety of products to meet their individual needs? No. Instead, try this three-step process:
1. Understand your customers typical buying patterns.
Analyze what your customers buy from you. That will help you determine which products or services are the first ones they buy, the ones that encourage return purchases, the impulse purchases that dont lead to more and the ones that existing customers buy.
An example is telephone companies, which promote long distance deals to attract first-time buyers, friends and family deals to lock them into a long-term relationship, telephone equipment as impulse purchases or personal 800 numbers to existing customers.
2. Offer your products and services in the right order for your customers.
Sequence and stage your products and services. Offer conversion products that turn prospects into first-time buyers, then offer reorder products which prompt first-time buyers to become regular customers. Finally, offer logical products that cause first-time buyers to expand their relationships with a vendor.
When I served as a product manager for the Bank of Boston, we offered CDs to attract prospects with funds to invest, created rollover programs to encourage CD customers to reorder our product and advertised checking products to build long term relationships with CD buyers.
3. Market your products and services in the right order for your customers.
Create sales and marketing programs that offer products and services in the correct order and to prospects and customers who are ready to buy them. Here are some recent examples:
- Sprint Telecommunications offered a hotline pre-selling Rolling Stones tickets to anyone willing to switch over its long distance.
- Progressive Insurance does a magnificent job of telling its less attractive customers that their policies would cost less if they switched to the competition.
- Amazon.com provides topical newsletters to customers based on their previous purchase history, correctly assuming they can be upsold or cross-sold.
It is possible to offer a wide range of products and services to customers without overwhelming them, but the effort must be organized and presented in a systematic process based on how and when customers buy.
Do not try to sell products and services on your schedule. Instead, understand your customers behavior and adapt your companys approach accordingly. In other words, perhaps Rosie ODonnells overzealous admirer should have taken her advice, and first painted her house!
Andy Birol (email@example.com) is president of PACER Associates Inc., a Solon-based consulting firm that works with companies to focus on their best ways to find, keep and grow customers. He can be reached at (440) 349-1970 or www.pacerassociates.com.
Individual Retirement Accounts (IRAs) and qualified retirement plans are designed to encourage saving for retirement during your working years. Contributions are generally tax deductible and assets grow tax-deferred.
But because assets can grow quickly, they sometimes far exceed the needs of their owners and become inheritance plans.
While the plans are great ideas, they can create significant estate planning problems with a dramatic tax impact. Retirement plans can be bad assets when they end up in an estate, because combined federal, state and estate taxes can consume up to 75 percent of the value of these assets, leaving a fraction for heirs.
Given the virtual certainty that tens of thousands of people will pass away with large retirement plan balances, the need for strategies is extremely high.
First, list your assets and liabilities to determine the net value of the estate in current dollars. The investment assets should be categorized as either retirement plan assets (IRAs and qualified retirement plans) or nonretirement plan assets, those held in taxable accounts. This allows you to determine a hypothetical estate tax.
Next, review the beneficiary designations for each retirement plan account. Keep in mind that assets held in retirement plans pass to the named beneficiaries under contract law regardless what any will might provide.
One way to stretch out the income taxes to be paid by the beneficiaries as they receive distributions from inherited IRAs is to use a multigeneration or stretch IRA. Heres how it works: When the plan participant dies, the surviving spouse, as the beneficiary, rolls the proceeds into different IRAs, each one with a child, grandchild or charity as the sole beneficiary.
When the surviving spouse reaches age 70-1/2, required minimum distributions must be made from each IRA. However, the distribution period is calculated based on the joint age of the spouse and beneficiary (maximum l0-year differential). When the surviving spouse dies, the distribution period is recalculated based on the beneficiarys life expectancy.
While the multigeneration or stretch IRA allows the IRA to continue to grow tax-deferred, it does not reduce the estate taxes due or replace the wealth lost to income and estate taxes. It simply defers the payment of the income taxes due on the distributions from the IRA.
If you want to replace the wealth lost to taxes, consider an irrevocable life insurance trust (ILIT). If the ILIT is properly drafted and managed, it will result in significant insurance policy death proceeds distributed to family, both income and estate tax-free.
A second-to-die life insurance policy, usually a universal life policy, is acquired by the ILIT. The beneficiaries of the ILIT can be children or grandchildren. Annual distributions are made from an IRA or qualified plan in an amount sufficient to pay the income tax due on the withdrawal and to fund a gift to the trust equal to the annual insurance premium due. This gift qualifies for the annual gift tax exemption.
Upon the death of the insured, the death proceeds are paid to the trust, which in turn distributes the proceeds to the beneficiaries of the trust, free of any estate or income tax. In effect, the death proceeds from the insurance policy replace the reduction in value of the decedents estate due to estate and/or income taxes.
This is an effective means of bypassing the estate and transferring wealth to ones heirs.
There are many other ways as well, and any financial investment consultant can outline which may work for your situation. The bottom line is this: It is important to recognize the potential problems inherent in retirement plans and take the steps necessary to preserve the wealth that has been accumulated in these plans. The method you choose is up to you.
Arthur Weisman is an investment consultant with First Union Securities. He can be reached at (216) 574-7317.
By 2010, 16 percent of all spending in the United States is projected to be for health care. In 1997, it was 13.6 percent.
With this upward trend, along with an aging population, health care companies must do more than they are today, because the demands won’t simply be for more volume of care, but better quality and speedier delivery.
PricewaterhouseCoopers recently commissioned a worldwide study on the future of health care. The findings illustrate several implications health care companies need to consider if they are to survive in this future world:
- Health care organizations that are consumer friendly will be winners. Organizations must change their processes, technology and organizational structure with an emphasis on delivery systems, attitudes and self-training. They must integrate eligibility, claims, referrals and authorizations into a customer-friendly process.
Consumers will be stratified between e-health and traditional patients. Companies must have systems to deal with both of these groups.
- Organizations must distinguish themselves through branding. Consumerism will blur the lines between wellness, acute care, chronic care and long-term care.
All health care companies will need to brand both at the corporate and sub-brand levels to attract capital, customers and market share.
- Service and speed will be keys to consumer satisfaction. The Internet has fostered the notion of I-time. To compete in I-time, health care organizations must develop virtual brains also known as knowledge management so workers and management can learn from each other in a fast-changing industry.
Through knowledge management, they must collect, consolidate and analyze information to better understand their consumers, decision-making processes and perceptions of services relative to competitors.
- New e-business models will emerge and challenge present-day medicine delivery vehicles. The Internet gives the advantage to speed over size.
Bureaucratic health care organizations will fail in this race to smaller, adaptive entrepreneurial ventures.
- The race for capital will hinge on the ability to demonstrate quality, efficiency and customer focus. Organizations will compete for capital on the basis of current, quantifiable and competitive data.
Their investors, whether they are government or private sources, will demand prudent expenditures in facilities, technology and organizational relationships. Losing the information race will mean losing the capital race.
- Functional silos in health care must be eliminated and replaced with seamless service. Professionals may impede change as they cling to traditional frameworks. Physicians are becoming more coherently organized, which benefits purchasers who are trying to work toward efficient models of quality care.
But as physicians form larger networks, health networks are often destabilized and consumers are unsure about who their providers are.
- Resources must be reallocated to retrain the work force to deal with empowered consumers and technology.
- Payers must stress prevention, because early detection and intervention will increase costs. As a result of the Human Genome Project, consumers may begin getting their own individual genetic maps by 2010.
Their risks for different diseases will be clearer, and they’ll want to do something about those risks.
- Consumers will want more and won’t want to pay for it. There will be increasing demand on health care providers and purchasers to spend more on information technology and skilled workers to serve demanding consumers.
- New opportunities for private health insurers outside the U.S. will expand rapidly.
- Medical professionals need to work toward global standards of medical treatment.
- Ethical dilemmas will proliferate for consumers, providers and purchasers. The Human Genome Project will push the envelope in terms of how medical information is collected, disseminated and organized.
In addition, new waves of medical devices and drugs will elevate questions of medical necessity, personal responsibility and rationing.
Todd Shryock (firstname.lastname@example.org) is SBN’s special reports editor.
Chemical dependency of any kind, whether on drugs or alcohol, can be one of the most difficult things to change in your life.
The constant cravings make it easy to fall back into old habits, and relapses mean starting the recovery process over again.
But one clinic is finding success through nontraditional means.
“What separates us from others is the way we put a variety of therapeutic methods together in a unique way,” says William Steiniger, managing director of Desert Canyon Treatment Center in Sedona, Ariz. “Our approach is a whole-body approach, encompassing the body, mind and spirit. This is more than a program that helps people stop drinking or using drugs. It’s about people getting their lives back.
“We try to get them to radically shift their whole perception of what life is about.”
The system is radically different than traditional 12-step programs. Desert Canyon’s philosophy is that the addiction can be ended permanently.
Patients are taught to understand why they are abusing drugs and that they can control these urges. They are treated with a combination of counseling, meditation, dietary changes and exercise.
“As a result of the exercise, they start to get their strength back,” says Steiniger. “The physical body affects the emotions and vice versa.”
People feel better about themselves and realize how low they were, and make a conscious choice to not use drugs and drag themselves back down to where they were before.
While a small number of people lapse after leaving treatment, the effects are short-lived.
“Instead of lapsing again, they do the reverse,” says Steiniger. “They remember how awful it is and end the addiction permanently.”
Steiniger compares the variety of treatments to assembling a toolbox. Once patients are taught to use these healing tools, they can use them to help “fix” themselves. Different tools work for different people, and each person can draw on what is most effective for him or her.
“You are either doing one of two things: reacting to life or creating,” says Steiniger. “When you are in the creative process, you are the master of manifesting what you want in life. People with addictions, they have lost their ability to create, and spend their life pushing up against something.”
The therapy process takes four consecutive weeks to complete. Patients have access to a call-in support system for as long as they need it, but Steiniger notes that few people use it more than once or twice immediately after leaving, because they simply don’t need the help anymore.
They have the tools to help themselves.
How to reach: Desert Canyon Treatment Center, (888) 811-8371, or www.desert-canyon.com
Todd Shryock (email@example.com) is SBN’s special reports editor.