Fortune at the top of the Pyramid…

A few months back I had a chance to meet up with a friend after a long long time.We decided to catch up somewhere convenient and since New Delhi can be a nightmare during peak hours I checked if my friend could make it to my hotel.”  I was parked at a 5 star courtesy my company but was it a good idea to pay through the neck for the drinks which would probably cost 5 times less at home.After all we just have to get sloshed.

My mind started racing at the options – ask my friend to buy a bottle on the way, go and fetch a bottle myself and ask for room service for the glasses and ice.I could probably afford soda from the mini bar.

As I checked the guest services folio I found something-  a gift coupon which announced that the hotel had a buy one get one policy for house guests during happy hours from 6-8 PM. So that’s half the price already and I get to show ff the  free thing as a smart move from a regular.Both of us drank like fish did not occur to me and the ‘free’ part will probably bring out the animal in us even more.Anyways there was hardly any time..

My phone rang.It was Ashwin my friend – the NRI venture capitalist.I directed  him to the hotel’s pub ” wellington”.

As soon as we were seated Ashwin waved to the steward and before the poor guy could offer any greetings he ordered – two Glenfiddich large please.we resumed our conversation thereafter which basically went around good old days…

The steward returned and I was surprised to see that he had just got two drinks.

” where are the free ones??” I asked.

” of I am so sorry sir.That offer is only for the weekdays and today it’s a saturday” He answered.

I picked up my drink  and put in a bunch of ice cubes eager to taste my favorite drink just the way I liked it.Ashwin did the same. We were bottle buddies.

We had a good time and after 4 – 5 large Glenfiddich’s when we could barely stand up we asked for the check.It was some 8 thousand rupees including the snacks.Both of us offered to pay and finally after a lot of argument I managed to snatch the folio from Ashwin and shoved my credit card in.At that point I did not even register what the bill amount was.I did not even want to show off or proove anything to my partner.We had grown up together and wouldn’t have cared if either one of us had bought over the hotel at that point in time.We went to the parking singing a Jagjit Singh loudly and promised to meet again soon.We knew “soon’ would be a couple of years.

Next morning when I woke up there was a nagging feeling apart from the hangover.I could nail it down to ‘why the hell did I spend so much money?When I could not get it off my mind I decided to analyse my behavior :

1.I had decided to host Ashwin at the hotel bar because I wanted to do it or because of the free drink offer ?

2.If I was sure so sure I could not afford 8000 bucks I should have let Ashwin pay. It was just a couple of hundred dollars for him after all.

3. Did I really bother that I had spend all that money.The fact was that even I was making enough to do this once in a while if not everyday.

4.Did I have a good time and was it worth ?

So what was it that was bothering me ?

As I recalled the events of last evening I got stuck with a line from the Ghazal we were singing last night :

हमने माना कि कुछ नहीं गालिब ,मुफ्त  हाथ आए  तो बुरा क्या है …

I know for sure that Ghalib is worthless, but what’s the harm if I can have him for free.

That was where my answer lay.I was feeling cheated !! No it was not the hotel but I was feeling cheated that something that was rightfully mine for free had been taken away by putting up technical barriers.How the hell it mattered if it was a Friday or a Saturday – I was entitled for a FREE drink which I did not get.I was lured into the trap by careful fine print.It was a privilege that was taken away unjustifiably.You don’t get to drink single malt at a five star for free all the time.It was foul play and nothing else.

Should I stay back till Monday and take revenge ?? I laughed at myself but a big lesson in pricing had been learnt :

1. Not having to pay up for a product or service is something etched deep inside our psyche.It is a measure of our “privilege Quotient” and our smartness.

2.While the service provider wants to get paid X , the customer wants to pay nothing for it.

3.Nothing is worthless as long as it is free.

4.We are as much gullible as our greed and we will see what we want to see not what we should see.

5.The “want” for freebies has nothing to do with our economic or social status.When it comes to paying as close to nothing as possible we are all the same.

6.There is no price for anything , only cost. You can sell anything for any price staring from zilch and taking it upwards with the customer’s aspiration or need.

These tenets do not simply follow the laws of supply and demand as has been proved by the sultan of Retail Sam Walton.He had mastered the art of creating exponential demand with the least drop in prices, keeping the supply angle out of picture for his customers.More than keeping the products at Wal Mart cheap, it is their ability to keep their customers feeling that they are cheaper everyday as compared to their competition that makes them the world’s largest and most successful retailer.

CK Prahlad proposed that there is a fortune at the bottom of the pyramid.In terms of increased accessibility due to a low cost of acquisition it might be true.A company can therefore make money by profiting not so much on per transaction basis but on a bulk of transactions which are undifferentiated , with the low cost of delivery and last mile.

I have been thinking – Is there a fortune at the top of the pyramid too ???

Customer pricing – Price vs value

“A retailer prices a product,a customer values it for what it is worth”

This Quotable quote originated nowhere else but in my own mind after being subjected to several incidences of winning and loosing the customer and getting her nod and nay,not for me.

While doing a presentation on Retail pricing strategy I came across a lot of material Differential pricing,Mark up Pricing,Competitive pricing,Penetrative pricing and so on.

But my experience in real life told me that something was amiss.What about the customer ? You are talking about your business model,Your costs,Your margin targets,Your competitors,The market scenario and all else but what about the actual customer who will shell out money from her pocket and take a purchase decision in your favor.I am sure there will be a lot going on in her mind when she decides to part with that hard earned currency note or gets indebted for the next few months to the bank and pay high interest charges.

Are we even asking her what do you want ?                DSC01694

How about a customer pricing ? What’s wrong is creating a product and asking a hundred of them what they would be willing to pay.I have no opposition to the pricing strategies  traditionally in practice but I am just saying that something is missing specially in the context of retail.

Let’s see and example :

What would pay for a  plastic slipper in a hyper market – May be Rs99

What would you pay for the same plastic slipper if it has a good brand name printed on it – May be Rs 149

What would you pay for the same plastic slipper in flea market – Rs 49

what would you pay for a plastic slipper with a house brand of top luxury retailer – Rs 199

The function is the same and it is just possible that all the product is being sourced out of the same factory and the same assembly line but the customer will only pay so much at different locations.

And location is just one on the dimensions that plays in a customers mind.There could be so many others Festive season,Comfort,utility,distance/cost of acquisition etc etc.

Every retailer positions itself to serve a certain niche or target segment and that is perfect as an idea but where we continuously go wrong is that we fail to recognize is that while your customers are saying yes to many products in your store they are also saying no to a  lot of products.This may impact profitability through loosing customer preference in terms of reduced shopping trips and increased frequency and intensity of markdowns on your product mix.

I strongly feel that retailers tend to loose the grip in the sense that what they feel is a great product or price turns out to be a damp squib with their customers.What should be transaction by transaction,customer by customer approach soon becomes a game of probability so much so that the buyers start building in for markdown in their business plans.While mark downs may not go away they can be substantially reduced by asking the customers what and how they feel about offerings.

Typically, a buyer will get in a product or a line of products and the DMM’s,the store managers,The operations guys will all sit in a room  and decide its fate.They will debate amongst themselves and the guy with the loudest voice and the heaviest weight will win.If you have a ‘yes’ man culture you can kiss your winter 2010 range good bye.The problem is that even if most people will know it they will not say it.

In contrast if we have panel of customers of different hues,age,sex,color,lifestyles and we get their opinion we may just find out to our horror that  the so called ‘winners’ did not excite the audience and they ended up picking up stuff from the ‘dumped’ corner.

When a retailer is ‘pricing’ he is building up the stake of the entire company,his business plans,his growth projections,his stock price,his career path and everything else in between into it.His decisions cannot be but colored.

But when the customer ‘ valuing’ a product she is deciding based on aesthetics comforting her eyes,the softness that her hand feels,the freshness that here senses smell,the utility that here mind perceives,the price that she paid for a comparable item some time back.She is not bothered about what the Ex factory price is,how much it cost to get the product from the Jungles of Africa or how much you pay your 26 vice presidents who have nothing to do with her moment of truth.She will just see what’s in it for me and what I need to pay for it.If she fels that the transaction is in her favor she will go for it else you can put it on discount so it is up for revaluation when the second chance comes.

Again she gives two cents for your negative margins,vendor markdown supports,company policy so please be careful in repricing.You may discover that your Buy One get one offer is a cold turkey as no one wants to buy a yellow color T shirt with Parrot green collars with which you wanted to make a fashion statement in your boardroom.

Our customers are our biggest and most valued assests,let not keep them out of our business plans.