Project report on

Operating issues in implementing CRM

Submitted by
Sowmya S -3511010699 Sowmya PB -3511010698 Shreenithy -3511010675 Shruthy Sonia -3511010677 -3511010695

Sugishna MT-3511010724 Sujay Suran- 3511010726

Introduction
The major strategic purpose of CRM is to manage for profit a company relationships with customer through three stages of customer life cycle: customer acquisition, customer retention, and customer development. A customer retention strategy aims to keep a high proportion of valuable customer by reducing customer defection and a customer development strategy aims to increase the value of those retained customer to the company .just as customer acquisition is focused on particular prospects,retention,and development also focused on particular customer. Focus is necessary because not all customers are worth retaining and not all customers have potential for development. a number of important question have to be answered when a company puts together a customer retention strategy. Which customer will be targeted for retention? What customer retention strategies will be used? How will the customer retention performance be measured?

We believe that these issues need to be carefully considered and programmed into a properly resourced customer retention plan .many companies, perhaps as many as six out of ten, have no explicit customer retention plan in place. Many companies spend a majority of their time ,energy and resources chasing new business ,with 75% or more of marketing budgets being earmarked for customer acquisition. Customer retention is the number of customers doing business with a firm at the end of a financial year ,expressed as percentage of those who were active customers at the beginning of the year.so this project is all about the operating issues in implementing consumer relationship management.

Top 5 CRM Trends We have a post-recession consumer and an economy that toys with economic downturn. Our 5 new trends for challenges marketers in this new reality: 1) Social Media Optimization: This is the year that efforts are redoubled to improve the effectiveness of social media marketing. This includes using social activities to support search engine optimization but also involves improving the effectiveness of all social media marketing. This includes gamification - the integration of game mechanics into marketing activities to make them more fun and to drive engagement and participation. Gamification is not a passing fad, it is here to stay. To read more on social media optimization and gamification,. 2) Multichannel: Every business needs to be a multi channel publisher now. This includes mobile! 3) The rise of the Datarati. Google's Chief Economist, Hal Varian once said that "Datarati are companies that have the edge in consumer data insight...Data is ubiquitous and cheap, analytical ability is scarce... The sexiest job in the next ten years will be statistician." How true. There has been and will continue to be an increased focus on data analysis as companies continue to invest in measuring social media, understanding customer value and modeling customer behavior. If you do not use your data to talk to your customers, others will. As such the investment in data aggregation and the hiring of "sexy" statisticians is a going to be a major trend in 2012. 4) Customer Experience: Customers have more choices than ever, and are more frugal. This affords them the luxury of demanding more. This is the year that the CRM Marketer will be charged with offering a consistent experience across all company touch points and developing the infrastructure that allows for knowledge sharing and smart communication. Smart marketers will identify and capitalize on unmet expectations. Those companies that understand where the strongest expectations exist will be the companies that survive and prosper. The customer's mobile and online experiences will begin to evolve and rival the customer's offline experience - attentive assistants and all. 5) Personalization and customization: In order to be effective in this new year, companies will seek to know more about its customers and use that insight to talk, engage and interact with their customers more often and more meaningfully in new and innovative ways (including dynamic content, blogs to other social networking). 2012 is going to be up close and personal, like it or not. Consider the checklist below. We believe that these strategies will enhance your likelihood of long-term CRM success. 1: Get sponsorship from the top brass. If management doesn't believe in the new approach, why should the employees? Implementing CRM requires working across organizational boundaries and breaking down long-term siloed behaviors and attitudes. You can't do that by yourself! Many times the difference between a successful CRM strategy and a huge waste of money is backing from the executive suite.

2: Build a team. Prior to developing your CRM strategy or selecting your CRM software, form a CRM team with representatives from each department to make sure colleagues' needs and concerns are addressed. Too often companies neglect to include the correct stakeholders, and the initiative fails to meet the needs of those tied to its results. Pick your CRM team wisely - everyone will need to own the customer experience. Remember in forming the team, consider people, process, and technology as all will be affected. 3: Define your business objectives? Your CRM strategy must be designed with your business objectives and customer requirements in mind. 4: Identify who your customer is. Is there agreement on definition of "customer?" - The marketing department of an automobile company might consider a "customer" to be a dealer, but the call center might consider it to be a driver. Have consensus on this and other key definitions. Can you identify your customers across multiple touch points (retail, call center, mail, catalog, web and e-mail)? Consider life stages. According to the U.S. Census Bureau, there are roughly 75 million baby boomers (born between 1946 and 1964), more than 49 million gen Xers (born between 1965 and 1979), more than 72 million gen Yers (born between 1980 and 1999), and 40 million millennials (born between 2000 and now). 5: Differentiate. Identify your customer segments - your high-value and high potential customers. Know who you want to serve. Understand what that customer wants? Prioritize. What is the customer worth and what is their potential worth?

6: Understand your Customers - what they want, and how they want it from you. 7: Agree on desired customer behaviors - build consensus on how you want customers to behave differently and what the customer experience will be... from the customer's perspective. Design a different customer experience for each customer segment.

8: Define customer experience goals. Articulate the customer experience. How should your experience feel? Identify important business interactions e.g. high volume or high cost. Identify interactions that are important to the customer - high involvement and high perceived importance. Evaluate performance: How are these interactions currently handled by your company? Are there opportunities for improvement? Focus on hot spots: Identify the areas that require your greatest focus and will provide the greatest potential return. Many companies don't have a good connection with customers. That's why firms should consider developing a systematic approach for incorporating the needs of customers into the design of customer experiences - ideally led by a senior officer who will act as the voice of the customer. The key to developing a successful new customer experience is to develop a response to a customer need that is unique, compelling, and adoptable. A response so attractive that customers are willing to change long-standing, often deeply ingrained behavior. 9: Have an integrated customer strategy. Today interactive marketing is a fragmented discipline in which marketers work with many different vendors to develop and execute marketing programs. Recognize that disparate databases of customer information prevent companies from gaining a holistic view of the customer throughout the organization. Break down those silos. Line of business managers are often employing tactics that address products and not customers. That is because they are still looking at accounts on file, rather than at customer relationships e.g. banks that send two offers within a short time span - one that recommends consolidating their debt into a home equity loan and the other that offers a balance transfer for their credit card. 10: Define and map data requirements - You'll need to know what customer data is necessary and from what system it will originate. See your customer through the same lens. A firm understanding of the level of customer data - account or household level - is critical. Do you plan to append external data? If so, what types: household size, income, psychographics, ZIP, real estate information etc. 11: Standardize data. Various departments in your organization may see your customer quite differently from another. Using one integrated set of analytical data throughout the company can help executives to make key decisions about how much to invest in a particular customer. 12: Dialogue with your customers. Have a clear (and realistic) picture of who you are in the matter of serving your customer. What do you value? What are you really selling them (are you reliable? Are you the most creative?)? It's not just a list of products, you need to focus on what you're trying to be to your customers. Make sure individuals are recognized at all contact points. Have you truly defined your privacy policy? Understand your company's boundaries for using data about your customers. And ask customers how they want to interact with your company. Keep your promises. Remind customers of promises kept and take responsibility for promises unfulfilled. Respond quickly to customer queries. Whether they send an email or leave a message, or come to the service counter, customers' time is precious.

13: Get personal. Customers hate to feel like the sales agent is reading to them from a script. Learn your customers' personal needs and profiles and target your service to each individual. It will make them feel important and that you value the relationship. In order to do this effectively, you need to staff and empower your talent pool appropriately to deliver on the customer experience. To do this effectively, focus on people, process and tools. 14: Develop success metrics - How will you know if your CRM program has been a success? 15: Create customer engagement programs (acquisition, growth and retention). Customer engagement is a process, not an event. Too often retention is treated as a project, rather than a guiding principle. Move your customers through the lifecycle... to maximize their value. Utilize business rules:

16: Collect Data - collect and use information from each customer interaction to make your chosen customers more valuable to your enterprise. Can you identify behaviors, attitudes, needs, propensities or intentions? Plan to clean your data regularly. 17: Test, test, test. Troubleshoot with test customers before making your services generally available. Focus on ROI. Experiment with your Marketing. 18: Monitor the customer experience. Keep your eye on the prize. Measure the results and soothe the inevitable hiccups. Walk a mile in your customers' shoes. Don't rely on complaints from customers about how horrific it is to do business with you. Put yourself in their shoes by going through the typical customer experience. It is amazing how many companies institute processes and half heartedly mystery shop themselves. Once you suffer through what you dish out, you'll be shocked into a more customer-centric mindset. Guaranteed. 19: Automate processes. Having customers enter their personal information on a Web site versus providing it to an agent over the phone reduces the potential for human error. Also,

customers may feel uncomfortable revealing personal data like medical and financial information to another person. 20: Empower staff. Give front line staff the ability to please the customer. Too often they can't make timely decisions nor can they present relevant offers - effectively facilitating customer dissatisfaction and defection. 21: When buying any new CRM system, keep it simple. Don't buy what you don't need. The fewer bells and whistles, the less time and money you'll need to devote to training. People don't like change as it is; keeping things simple only makes the switchover that much easier. And train early and train often. 22: Communicate your successes to the rest of the organization. Identify quick wins. Tackle the smallest, easiest task straight away and save the hard stuff for later. Success early on gets the ball rolling and motivates employees. Success can be contagious. Be Consistent Have you ever gone to your favorite restaurant only to find that your favorite dish has been slightly altered? The cooks and the waiters tell you that this fresh new taste is much better than the old one. Have you ever gone to the store to buy your favorite candy and quickly found out that they dropped that line of product? The candy company tells you not to worry because theyve replaced your favorite product with a better one. Companies simply dont understand that customers want consistency. CRM stands for customer relationship management. Some of the CRM best practices include branding yourself, building trust, understanding your customers, and being consistent. This article will focus on being consistent, and how this helps you build trust with your customers and offer them quality customer service.

Psychologically your customers crave consistency. There is a whole field of research on this subject known as the consistency theory. Basically this theory explains that when something seems inconsistent to a human being they feel irritated. In order to reconcile this inconsistency people will simplify their beliefs and exclude or discount items that are not consistent. What this means for businesses: Humans tend to trust other humans that act consistently. This is because they can predict how this person will act. If you know how someone is going to act then you know how to interact with them successfully. The same holds true for businesses. People trust

businesses who act consistently. They dont trust businesses that try to change their brand, processes, or products every other year. One classic mistake made by new businesses is that they try to change too rapidly. There is a lot of rhetoric out there in the CRM best practice field that says you need to be constantly adapting. While it is true that an organization needs to adapt to the times, they need to do so in a consistent manner. McDonalds is the ultimate example of consistency. The store itself was founded on consistency and this has led to one of the most successful businesses of all time. The McDonalds brothers only allowed a small amount of items to be produced at their store and they rarely changed the menu. This allowed customers coming to McDonalds to know exactly what they were going to get every single time. This was really the first time that a restaurant offered anyone a consistent experience. Ray Kroc took over the stores and placed them all over the nation. Every store had the same menu and the burgers and fries tasted the same. This meant that a person living in California could go on vacation to Florida, see a McDonalds there and know exactly what they were getting.

Customer retention
CUSTOMER RETENTION PLANS Customer retention is about keeping the customers youve spent that money to acquire. And if youre in an industry where they make multiple purchases over the years, your entire team should be very focused on retaining those customers:

Delivering service thats consistent with your value proposition and brand Cross-selling, up-selling and asking for referrals from existing customers Developing programs to increase customer loyalty and decrease turnover Knowing the lifetime value for different segments and using that data to improve your marketing Prioritizing retention as a major focus in your annual marketing plan

Studies say it costs ten times more to generate a new customer than to maintain an existing one. If you have a small number of customers, losing a few could cripple your company. Even if you have a large number of customers, a small increase in your retention rate should dramatically increase your profits. In fact, in his book The Loyalty Effect, Fred Reichheld writes that a 5% improvement in customer retention rates will yield between a 25 to 100% increase in profits across a wide range of industries.

Best Case
Your company is focused on customer retention and it has paid off. Renewals are high; you put a lot of effort into campaigns and service for existing customers. Sales reps are incented to keep customers happy, and you use financial modeling and surveys to identify problems and focus on vulnerable customers. Your revenue has grown substantially each year because youre adding new customers without losing current ones.

Neutral Case
You know how important it is to retain customers. The reps who service existing business are good, but youve lost some customers that you shouldnt have. Youve done surveys but havent done anything major as a result. And you struggle with the commission for current business some people argue that you shouldnt pay at all because theyre house accounts.As a result, you have to replace current customers each year.

Worst Case
You dont formally market to your current customers. You know your service could be better, but you havent had the time to develop an improvement plan. You definitely have more turnover than youd like.As a result, youre continually investing to generate new customers. Your revenue profit margins are much lower than they could be, and the churning takes its toll on your organization.

Customer Retention Key Concepts & Steps

Determine your retention strategy Your value proposition and brand strategy should drive your retention plan. For example, if your value proposition is customer intimacy, your customers are counting on great service. If theyre buying on price, youll usually focus more on automating service to minimize costs. Build your team In some industries, the original sales rep is the best person to manage an existing client for example, the account may require ongoing selling. In other cases its better

to transition the customer to an account rep who focuses on day-to-day management. Once youve decided how to structure the team, determine how many people youll need and start recruiting Pay commission for renewals and growing the business Your current customers are your most valuable asset; if your sales reps dont earn commission on renewals, theyll be incented to spend their time chasing new business instead. Market to existing customer Put as much effort into your current customer campaigns as you do the rest of your marketing programs. Know your audience, grab their attention, focus on the offer, measure your results. Use campaigns to

Nurture your customer relationships Encourage them to buy again Expand your relationships by cross-selling, up-selling and asking for referrals Identify customers who are at risk of defecting Continually deliver on your value proposition and brand promise

Measure purchase intent and loyalty, not satisfaction Customer feedback can help you improve your products and continue your relationship. However, its not effective to measure customer satisfaction because its so vague. Satisfied doesnt mean they intend to keep buying. Instead, focus on behavior: Ask whether they intend to buy again and why or why not. Ask what three things you can improve and whether theyll provide referrals. These questions provide more actionable insight than satisfaction. Treat a survey as a marketing campaign. Give your customers a reason to respond, thank them and share the results. Use data to evaluate large groups of customers If you dont have personal relationships with your customers, use data to identify customers who havent purchased in the normal timeframe. They may be at risk of defecting and you can launch retention campaigns and encourage them to stay.

After Customer Retention

TOP 5 CUSTOMER RETENTION MARKETING TATICS The probability of selling to an existing customer is 60-70%. The probability of selling to a new prospect is 5-20% (from Marketing Metrics). Research also shows that a 10% increase in customer retention results in a 30% increase in the value of the company (from Bain and Co.) Anyone working at a SaaS business knows that churn and customer renewals are critical metrics for the business. Yet, many marketing plans are so focused on customer acquisition that they largely ignore customer retention. Here are some ideas to help you kick-start your customer retention marketing: 1. Regular Communication with Customized Content and Special Offers This is the cornerstone of any good customer retention program and careful attention should be paid here. Most companies have some sort of newsletter to communicate with existing customers but fewer are actively making offers to their current install base that are customized according to what is already known about the customer. This can be as simple as offering an upgrade at a special price to tiered discounts or preferred access to support or other resources. 2. Customer service Poor customer service accounts for 70% of customer loss. Marketing should take that number very seriously and work with the support team to deliver content that can help service folks do their job. In my experience many thorny customer service issues stem from a mismatch between the offering functionality and customer expectations. Marketing can create content that can set customer expectations for functionality and performance to make sure there is a good match between the product and what the customer is trying to do. 3. Listen (and then talk) The overwhelming majority of unhappy customers will never communicate their dissatisfaction with you. Regularly checking in on customers will help you to see signs of an impending departure while theres still time to fix problems. Regular customer contact through customer advisory boards or other less structured customer calls will often alert you to bigger problems before theyre reflected in your metrics. You can learn a lot by eavesdropping on customers on blogs, Twitter and

forums. Just remember that if you are going to engage with customers in this way you need to be prepared to act on the issues they are complaining about 4. Loyalty programs, appreciation awards and customer referral rewards rewarding customers for referring you new business or for repeat buys is always a good idea. Even in markets where that isnt appropriate (Ive never seen a rewards program for enterprise infrastructure software for example) you can still give customers an award to recognize them (and give them something to brag about). 5. Bring Your Customers Together at the larger companies I worked at our annual user conference was one of the most successful marketing tactics we did. Companies with smaller user bases and budgets are doing similar things by creating online spaces (in the form of forums, custom social networks, facebook or LinkedIn groups, etc) where customers can connect, share their experiences and learn from each other

Learning from customer defection Customer Defection

In order to learn from customer defection, a business must understand the strategic importance of customer loyalty. Product-oriented companies with no focus on its customers and no market orientation will more likely to have high customer defection. Not many of those firms will take the time to find out why they lost the customer. Businesses understand the significance of existing customers and enforce every effort to keep them satisfied. However, lost customers are the most valuable source to recognize potential improvements for the company. One of the reasons the businesses fail is that they tend to focus on profitability and stock prices rather than customer satisfaction and loyalty. Businesses that utilize its operations on creating customer value are destined to be market leaders. Lexus, for example, initiated a model that calculates how much more each dealership could earn by achieving customer loyalty. Through the use of this model, Lexus recognized the importance of customer retention, and it empowered and trained its employees to offer full customer satisfaction. Customer Value Companies that do not emphasize on customer value and enforce no effort to prevent customer defection will lose about half of their customers in about every five years. If those companies do not measure the reasons behind customer defection, they will more likely lose profits and market share to competition. Creating customer value is the most important step to prevent customer defection. Understanding the reasons behind customer defection will lead to improvements in the business operations. The concept of customer value and customer defection is inversely related meaning that the higher the customer value, the lower the customer defection rate will be.

one misconception among managers to measure customer satisfaction is the use of satisfaction surveys. The surveys are often misleading and should not be taken as a benchmark. Companies that search for the root cause of customer defection will learn from their customers and will be able to identify the areas that need improvements. MicroScan, for example, interviewed its lost customers and identified the root causes of defection. After learning from their customers, the company gave attention to its equipment and delivery problems. By getting feedback from its lost customers, the company was able to improve its results and process quality of customer value. MicroScans ability to learn from its lost customers and failures eased its way to a market leadership position.

Learning from the Customers The key success factor for companies to succeed in todays competitive job market is to emphasize on customer value. High customer value will keep the customer defection at low levels. Each company will experience customer defection, but the companies that learn from customer defection will be the ones to lead the market. U.S. corporations lose half their customers every five years. But most managers fail to address that fact head-on by striving to learn why those defectors left. They are making a mistake, because a climbing defection rate is a sign that a business is in trouble. By analyzing the causes of defection, managers can learn how to stem the decline and build a successful enterprise. The longer customers stay with a company, the more they are worth. The key to customer loyalty is value creation. The key to value creation is organizational learning. But if so much useful information can be wrung from a customer loss, why don't businesses learn or even try to learn from customer defections? There are seven principle reasons 1. Many companies aren't really alarmed by customer defections or they're alarmed too late-because they don't understand the intimate, causal relationship between customer loyalty on the one hand and cash flow and profits on the other. 2. It is unpleasant to study failure too closely, and in some companies trying to analyze failure can even be hazardous to careers 3. Customer defection is often hard to define. 4. Sometimes customer itself is a hard thing to define, at least the kind of customer it's worth taking pains to hold onto. 5. It is extremely hard to uncover the real root causes of a customer defection and extract the appropriate lessons.

6. Getting the right people in your organization to learn those lessons and then commit to acting on them is a challenge. 7. It is difficult to conceptualize and set up the mechanisms that turn the analysis of customer defections into an ongoing strategic system, closely supervised by top managers and quickly responsive to changing circumstances. Loyalty and Profits In general, the longer a customer stays with a company, the more that customer is worth. Long term customers buy more, take less of a company's time, are less sensitive to price, and bring in new customers. Best of all, they have no acquisition or start-up cost. Good long-standing customers are worth so much that in some industries, reducing customer defections by as little as five points from, say, 15% to 10% per year-can double profits. CEOs buy the idea that customer loyalty matters; they would prefer to have loyal customers. But without doing the arithmetic that shows just how much a loyal customer is worth over the whole course of the customer life cycle, and without calculating the net present value of the company's present customer base, most CEOs gauge company performance on the basis of cash flow and profit. They rarely study the one statistic that reflects how much real value the company is creating, the one statistic with predictive power: customer retention. What keeps customers loyal is the value they receive. One of the reasons so many businesses fail is that too much of their measurement, analysis, and learning revolves around profit and too little around value creation. Their CEOs become aware of problems only when profits start to fall, and in struggling to fix short-term profits, they concentrate on a symptom and miss the underlying breakdown in the value-creation system Although some executives do realize that profits are really a downstream benefit of delivering superior value to customers-and that customer loyalty is therefore the best indicator of strategic success or failure they lack the tools they need to focus their organizational learning on this most basic building block of profitable growth. They make the most of standard market research, including customer-satisfaction surveys, but such tools are simply not up to the task. (See the insert "The Satisfaction Trap.") And yet the message that relative value is declining-and all the information a company needs to make sense of that bad news and design possible remedies-is available from the day trouble starts. Defecting customers have most of that information. They are always the first to know when a company's value proposition is foundering in the face of competition. In Search of Failure The lifeblood of adaptive change is employee learning, and the most useful and instructive learning grows from the recognition and analysis of failure. A first step in getting the people in your organization to focus on failure analysis-in this case, customer defections requires overcoming their preoccupation with success. Of course, success has lessons to teach. But businesspeople today are obsessed with success-and sometimes more obsessed with other people's success than with their own. Benchmarking has become a feverish search for the nation's or the world's lowest costs, highest volumes, and fastest growth. Academics, consultants, and executives scour the globe for approaches that have led to big profits in one situation so they

can apply them in others. Yet this quest for best practice has created much less value than one might expect, and the people who study systems can tell us why: When a system is working well, its success rests on a long chain of subtle interactions, and it's not easy to determine which links in the chain are most important. Even if the critical links were identifiable, their relative importance would-shift as the world around the system changed. So even if we could point to the critical links and more or less reproduce them, we still could not reproduce all the relationships or the external environment in which they operate. What can help is the study of failure. The people who build, fly, and regulate airplanes understand this. Airline performance in the United States, as measured by the fatality rate, actually exceeds six sigma-3.4 defects per million opportunities which is the demanding standard of quality many manufacturers pursue but probably don't reach. When a plane crashes, investigators retrieve the flight recorder and spend whatever it costs to find out what went wrong. The result is that in a vastly complex and extremely dangerous operating environment, accidents have become rare events. One of the world's consummate investors, Warren Buffett, reached a similar conclusion in his very different field. In 1991, he gave a speech at the Emory Business School in Atlanta, Georgia. He told his audience, "I've often felt there might be more to be gained by studying business failures than business successes. In my business, we try to study where people go astray and why things don't work. We try to avoid mistakes. If my job was to pick a group of ten stocks in the Dow-Jones average that would outperform the average itself, I would probably not start by picking the ten best. Instead, I would try to pick the 10 or 15 worst performers and take them out of the sample and work with the residual. It's an inversion process. Albert Einstein said, Invert, always invert, in mathematics and physics,' and it's a very good idea in business, too. Start out with failure and then engineer its removal." In addition to their preoccupation with success, there is another reason companies make so little use of failure analysis. Psychologically and culturally, it's difficult and sometimes threatening to look at failure too closely. Ambitious managers want to link their careers to successes; failures are usually examined for the purpose of assigning blame rather than detecting and eradicating the systemic causes of poor performance.

CASE STUDY THE EFFICIENT MARKET HYPOTHESIS

Work on the efficient market hypothesis didnt evolve until long after the infamous 1929 stock market crash. However there is extensive research on the crash as well as the Great Depression. See for example Galbraith (1955). The work of Friedman and Schwartz (1963) helped stimulate much of that research. It is instructive to review that period to determine if the efficient market hypothesis might have explained the sharp movements in equity prices. The U.S. economy grew rapidly during the 1920s. Income tax rate reductions likely contributed to growth and economic optimism, as tax rates fell from a top rate of 73 percent in 1921 to 24 percent in 1929. Technological advances during that period were also instrumental in generating positive market sentiment suggesting what may have led to investors placing a high value on equities during the latter part of the 1920s. Work by Friedman and Schwartz (1963) on mistakes made by the Federal Reserve during the late 1920s and early 1930s was summarized by Bernanke (2004). Those mistakes included the tightening of monetary policy starting in the spring of 1928 and continuing until the October 1929 crash. That tightening was deemed not to have been necessary. Information on increasing

interest rates and slowing money growth could have been interpreted by investors as adversely impacting equity prices. The efficient market hypothesis would imply a downward correction in equity prices due to those central bank policy moves which might explain the initial drop in stock prices. Although it must have taken time to establish that a definite change had occurred in policy, it could be argued that the market took a longer time, at least most of 1929, to discount that information into stock prices than is consistent with the hypothesis. Equity prices started to recover in 1930 but in September and October 1931 the Federal Reserve made another policy mistake according to Friedman and Schwartz (1963) by increasing interest rates to support the dollar. That central bank decision again helped send equity prices lower. The above monetary mistakes were perhaps large enough in themselves for investors to discount equity prices by a substantial percentage, at least initially. Sentiment and bandwagon effects were likely additive to the equity decline in that time period. However the addition of adverse macro policy effects probably accounted for a substantial portion of that equity price decline and secondary damage to the real economy. Tariff increases became part of the Republican platform during the 1928 presidential election. During the week of October 21, 1929 the tariff bill written by Senator Smoot was being discussed on the Senate floor, Cosgrove (1996). On October 24, Black Thursday, the equity market declined sharply, likely reflecting the tariff issue. But that warning went unheeded. October 29 was a day of devastation as the increasing likelihood of tariffs finally caused investors to sharply reduce the market value of equities, for large tariffs were expected to have a very detrimental effect on the economy and corporate profits. Investors factored that new information on tariffs into equity prices which pushed equity prices lower. The Smoot-Hawley Tariff Act was signed in June 1930. Other countries responded by implementing tariffs which plunged the global economy into depression. This adverse information, which had started accumulating in 1928, was not fully discounted into stock prices until the middle of 1932, fully two years after the last of the policy moves was taken. This length of time seems to be excessive and somewhat negates the usefulness of the efficient market hypothesis. In real terms the S&P 500 price index didnt regain its prior high until November 1958 29 years later, Figure 1. Deflation in the 1930s was more than offset by higher inflation rates during the 1940s so that inflation was a positive 1.4%, on average, over the entire

period.