Girl Scout Cookies, the Mutual Fund Way

Recently a colleague reported that his 7-year-old daughter, who is selling Girl Scout cookies, appears to have a future in sales. She told him that instead of simply telling her customers that a box costs $4, she would say "five for $20." Okay, so she still has much to learn. For example, why not go one step further and make the price $19.95? But it's an impressive start for a 7-year-old.

Then I got to thinking. What if Girl Scout cookies were sold as mutual funds are? It's a scary thought.

Ding-dong! A small girl rings the doorbell at a nice suburban house. A friendly man opens the door.

"Why, hello, Katie! That time of year again?"

"That's right, Mr. Martin. Do you want to buy some Girl Scout cookies?"

"Sure. What's the selection this year?"

She hands over the sheet showing delectable varieties of mints, cremes, and other sweet confections. He ponders the choices.

"Hmm. . . . Okay. . . . I'll take a box of Thin Mints and a box of Peanut Butter Patties. How much do they cost this year?"

"That depends."

"What do you mean, 'that depends'? Isn't there a price per box?"

Katie rolls her eyes. Grown-ups can be so dense.

"Well, yeah, but it depends on what kind of box you order. Like, if you want an A box, you pay $4 now. If you order a B box, you don't pay anything now, and you don't pay anything when the cookies get here. But if you eat the B cookies really fast, then you have to pay."

Mr. Martin looks confused. "How much?"

"Let's see." She fishes a small laminated card from her pocket. "If you finish the cookies in a week, it's $4 a box. Two weeks, $3. It goes like that. If it takes you more than a month to finish them, you don't have to pay anything at all. Except the fee."

"The fee?"

"Yep. If you order a B box, you have to give me a quarter each week, from now until you finish the box."

"A quarter a week? What for?"

"Um, to pay my, um . . ." Katie looks down at the card. "To pay my 'ongoing marketing expenses,'" she says. She puts the card away. "That means, like, if I get thirsty when I'm walking around to all the houses, and I get a lemonade at Jenny's stand. You don't expect me to pay that out of my allowance, do you? My parents only give me 50 cents a week!"

This is too much for Mr. Martin. "Okay, forget the B boxes. Put me down for an A box of Thin Mints and an A box of Peanut Butter Patties." He thinks for a second. "Hey, what happened to Honey Stars? I don't see them here. Those are my favorites! Don't they make them anymore?"

"Oh sure, they still make Honey Stars. They're really good."

"Can I get some?"

"No."

"Why not?"

"They're not on our Preferred Cookie List."

Now Mr. Martin is really bewildered. "Okay, Katie, I think that's enough. I'll see you in three weeks or so, right? Say hello to your parents for me." He starts to close the door.

Katie gets frantic. "Wait, Mr. Martin! Don't you want some Caramel Clusters? I'll put you down for three boxes." She starts to write on her sheet.

"No!" Mr. Martin yells, before calming himself. "I mean, no thanks. I don't want any Caramel Clusters. But thanks anyway."

"Please, you have to buy some! How about two boxes? Or five?"

Looking at her pitiful expression, he is tempted to help out. But he stands firm. "Katie," he asks. "Is there something going on with the Caramel Clusters?"

She looks furtively to one side, then the other. "Promise you won't tell anyone?"

"Promise."

"Our troop leader told us to 'push' them. I asked her what 'push' meant, and she said it meant sell a lot of them. I asked her why we needed to do that, but I didn't really understand what she said. Something about 'margins.'"

"Sorry, I think I'll pass." Again he thinks for a moment. "Hey, you know what, Katie? Don't get yourself into trouble or anything, but if you have a chance, could you tell your troop leader that some of your customers would like to go back to the older, simpler ways? No more A or B boxes--or K, L, or Z boxes, for that matter. No added fees, no pushing the caramel, okay? Tell you what--if you give her that message, real politely, I'll give you a dollar. No, two dollars. Okay?"

Katie beams. "Sure, Mr. Martin! You're real nice." She starts to walk away. But after a few steps, she turns around, a puzzled look on her face. "Mr. Martin?" she says. "How did you find out about the Z boxes?"

"What?" he says. "I was joking. You mean you really have Z boxes? What's the story with those?"

"They're the same as the others. But they only cost $1."

"Really? Great! Can I have those instead of the A boxes?"

Katie shuffles her feet and looks at the ground. "Um, well, no. I mean, um, I can't . . . " She takes the laminated card out of her pocket again. "The Z boxes are reserved for institutional clients."

"Bye, Katie." The door slams shut.

Little Katie goes on her way. She sighs. "Gotta sell some Caramel Clusters here or I'm toast," she thinks sadly as she trudges up the next driveway.

Note: Morningstar analyst Langdon Healy (and his 7-year-old daughter) provided valuable research assistance for this article.