Tag: willingness

Vegetable shopping – It’s not about percentages

Some habits are hard to change. One that is especially hard to change is bargaining for vegetables. I was trained well, I must say, in the bazaars of Jayanagar 4th Block Shopping Complex. I was taught that one needs to do a full round of the market before making any purchase, in order to understand the “market price”. I was taught  techniques that would make the shopkeepers give the goods for the price I offered, I was told what demographics to approach for what kind of vegetables, and over time I must say I became an excellent vegetable shopper, when sent to Jayanagar 4th Block that is.

Another thing that is hard to change is willingness to pay, and this is where I see some irrationality. For example, I’ve just returned from the fruit and vegetable shop close to my house, having refused to buy a cucumber because the shopkeeper asked for Rs. 10 for it, a 100% markup on the not-so-longterm average price of Rs. 5. And that is precisely the problem – looking at it as percentages.

We don’t usually consume too much cucumber. If I’d bought that cucumber it would’ve lasted about a week. So by refusing to pay the “100% premium” for it, I’ve essentially saved my family a maximum of five rupees over the course of a week (and this is in the best case – conditional on my being able to procure cucumber at the “normal rate” soon. Else the loss is larger). And given our not-so-inconsiderable weekly expenses, and the fact that our “discretionary spend” is an order of magnitude larger than the five rupees I’ve saved on the cucumber, this just doesn’t make sense.

The mistake we make here is to look at the percentage increase in weekly budget of the particular item, and base our decision on that. Instead, if we were to look at the increase in the “total weekly budget” (across all items), that could help us get a more realistic figure for our willingness to pay for certain things.

Of course, the big problem here is that even if my rational mind says this, there’s a behavioural issue in paying much more than the price we’ve been “anchored” to. I don’t know how we need to get over this.

S&P’s Responsibilities

Reading through some of the reactions from “experts” to the S&P’s downgrade of US debt, I see words such as “irresponsible”, “misguided” and “inappropriate” being bandied around. These experts seem to be of the view that in view of all that the US is already going through (given the debt crisis et al) it was not correct for the S&P to push it further down into the abyss by downgrading its debt.

Now, the S&P is a rating agency. Its job is to rate debt, categorizing it in terms of how likely an issuer is to honour the debt it issues. It is a privately held firm and it is not the job of the S&P to prevent global crises and save the world. In this case, the S&P has just done its job. And having been following the crisis for a while I’m of the opinion that it’s done the right thing (check Felix Salmon’s article on this; he says the downgrade is more due to the risk of the US’s willingness to not default, rather than its ability; given that there is no permanent solution yet to the debt ceiling and it issues all debt in its native currency).

If a simple move like this by a private company is going to bring down the world, it is because of screwed up regulations (read Basel 2 and Basel 3) that ended up giving way too much importance to firms such as this. And I’m sure the US had adequate representation at that meeting in Basel where the accord was adopted, so it can be partially held responsible for the enormous power that rating agencies currently wield.

The bottom line is that excessive regulations based on dodgy parameters have been responsible for a lot of the mess that we see today. #thatzwhy we need strong regulations.

Issuing in stages

I apologise for this morning’s post on IPOs. It was one of those posts I’d thought up in my head a long time ago, and got down to writing only today, because of which I wasn’t able to get the flow in writing.

So after I’d written that, I started thinking – so if IPO managers turn out to be devious/incompetent, like LinkedIn’s bankers have, how can a company really trust them to raise the amount of money they want? What is the guarantee that the banker will price the company at the appropriate price?

One way of doing that is to get the views of a larger section of people before the IPO price is set. How would you achieve that? By having a little IPO. Let me explain.

You want to raise money for expansion, or whatever, but you don’t need all the money now. However, you are also concerned about dilution of your stake, so would like to price the IPO appropriately. So why don’t you take advantage of the fact that you don’t need all the money now, and do it in stages?

You do a small IPO up front, with the sole purpose of getting listed on the country’s big exchanges. After that the discovery of the value of your company will fall into the hands of a larger set of people – all the stock market participants. And now that the market’s willingness to pay is established, you can do a follow on offer in due course of time, and raise the money you want.

However, I don’t know any company that has followed this route, so I don’t know if there’s any flaw with this plan. I know that if you do a small IPO you can’t get the big bankers to carry you, but knowing that some big bankers don’t really take care of you (for whatever reason) it’s not unreasonable to ditch them and go with smaller guys.

What do you think of this plan?

Shoe Shopping

Ok this is a typical management guru/corporate whore kind of post.

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Last weekend I needed to buy a new pair of shoes. My last pair of black formal shoes had broken a couple of days earlier and I urgently needed a new pair if I were to wear something decent to office on Monday. It was late on Saturday night when I went shoe shopping.

So I walk into this store in Jayanagar and ask one of the sales reps there for a pair of black formal shoes. He asks me my size and immediately runs inside to fetch a pair. While I’m trying out that pair, he runs in and fetches two more. He makes me walk wearing a different shoe on each foot. He brings shoes of all kinds, of varying prices, of varying sizes, of different styles. Before I know it, there are a dozen pairs in front of me, and I’m having a hard time deciding which to pick.

The choice left me utterly confused and I walked out without buying anything. It was impossible for my head to come up with a tractable algorithm to decide which of those shoes to buy. I continued on my walk, stopping only when I reached another shoe shop, with the same name and half a kilometre away.

The salesman here seemed more experienced. Before he went in, he asked me a few questions about what i wanted. He asked about my willingness to pay, colour preferences, style preferences, and even asked me to point out the shoe on display which looked closest to my last pair. He made me take off my floaters and studies carefully the shape of my foot. Even after he goes in, he pops out a couple of times asking me more questions. And finally emerges with one pair.

That pair fit wonderfully! It seemed to satisfy all the constraints that I’d mentioned, and was extremely reasonably priced. And I didn’t need to think twice before buying it.

This is what good marketing is all about. It is about understanding the customer’s needs properly before trying to sell him something. To understand what he wants and give him just that rather than simply flooding him with choices which will only end up confusing him. Giving him more choices makes him do more work than he wants to, and he will simply escape.

If you are in a sales/marketing role in your company, you would do well to spend that extra hour in trying to exactly understand what your customer wants, rather than simply trying to feed him your packaged solutions. I’m sure the extra effort will be more than worth it.

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People, I need honest feedback about how I sound when i try to write like a management guru. Hope I’ m global enough!