Spitzer sex saga offers MBA case study lessons
New York Gov. Eliot Spitzer says he’s sorry for whatever he’s done, which from the look of things amounted to romps with pricey prostitutes from an outfit called Emperors Club VIP. For students of business, the Spitzer scandal opens a new window into the workings of an illegal industry.
As it turns out, prostitution has business principles, human-resources challenges and marketing difficulties just like every other line of work.
Take, for example, the transaction that no doubt will be Spitzer’s last with Emperors, whose four principals were arrested last week. It was outlined in an affidavit by FBI Special Agent Kenneth Hosey on March 5.
Spitzer, identified by the New York Times as “Client 9” in Hosey’s statement, was looking to purchase the services of Emperors’ “Kristen” for an evening just before Valentine’s Day. Management at Emperors had strict rules about payment—major credit cards, authorized bank cashier’s checks and “most foreign currencies” in advance. Add a 20 percent surcharge if you needed Emperors to exchange your currency, according to Emperor’s Web page, which recently was shut down.
The New York governor tried to book his appointment with only a $400 credit on his Emperors account, but Emperors wasn’t buying it. Sticking to its guiding principle (no money, no action) Emperors kept the evening with Kristen on hold until Spitzer’s payment arrived Feb. 13.
Not wanting to encounter payment issues next time around, Spitzer gave Kristen an extra $1,700 as a deposit toward a future transaction. (Her services that night went for $3,100). Emperors, a class outfit, had no tolerance for delinquent payments.
Keep ‘em honest
Along with a knack for keeping customers honest, Emperors was a marketing whiz with a talent for knowing its customer. A Web page for Emperors Publishing Media Group, which advertised Emperors Club, boasted that 92 percent of Emperors Club VIP International Members were “CEO/Owner/Partners of a large” company. Annual income of its tony clientele ranged from $1 million to $30 million a year, the Web page said.
And Emperors wasn’t so foolish as to ignore the graying of America: Its Web page said that 9.3 percent of members were retired chief executive officers. Think of all the disposable income from those stock options.
With such a monied clientele, it would be smart to push for a little synergy. Seventy-seven percent of Emperors customers owned or collected art, according to its Web page, so it was a no-brainer to set up a division to buy and sell original art for clients it described as “millionaires and billionaires.”
Supply and demand
Even good marketers can’t control everything in the marketplace, though, and Emperors did face its challenges. Among conversations the FBI captured from phone calls, e-mail and text messages was one which two principals concluded that there was no point in advertising in Miami because of a tight supply of prostitutes.
In a different conversation, the two bemoaned that the Los Angeles market was sluggish because of too many girls, not enough demand. It was Economics 101, right out of Adam Smith.
To keep customers happy, the company offered lots of options. Customers who paid cash got a discount, much as you might when you fill up the car at certain gas stations.
Two prostitutes for four hours came with a price tag of $3,600 for cash, but $4,140 on the American Express card.
Taking a page from the auto industry, Emperors even offered a “buy or lease” option. A customer who tried a prostitute and liked her could pay a fee to buy her out, thereafter doing business with her directly and avoiding the middleman.
