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 ???

Sell for the body,Sell to the mind

Bhagwan Krishna tells Arjun “Idam Shariram Kaunteyam” meaning that which dissipates is the body and therefore you must not think too much about it.As retailers we must understand this law.

What we sell is almost always for the body but we must remember that it is the mind that remains constant and governs the body so whatever we do must be targeted at the consumers mind.If you can convince the mind of a 16 year old about your value preposition you can get a customer lifetime value of millions of rupees if she shops with you till she dies.In the process of reduction of the 70 odd years the body  consumes large amount of substances which the mind must fulfill.While it does that the mind is always careful and alert and tries to maximize the value in every deal it does and every transactions it takes part in.While the body wears the Jeans the comfort and fit appeal to the mind.While the tongue tastes the food the pleasure is entirely  the mind’s.While the body works hard to earn the money ,the mind decides how and when it is to be spent and what is the “value” of a product or service.

By chasing the price a retailer commits nothing but harakiri.Have as look :

1.If you get your customers because of price you will loose them because of price as someone can always offer a lower price than yours

2.You have to pay something for anything so Price can not be a source of sustainable competitive advantage

3.You do not manufacture everything yourself so your competitors can always go to the same suppliers and may be crack a better deal or decide to work on lower margins assuming they got the same price

4.What is cheap for one is costly for another so you will always be “expensive” in the eyes of a group of customers.Just as we say how much is too much we can also say how low is too low.

5.Every pit has a bottom and one day you will hit it.

So what’s the solution ? Sell to the mind.

1.You are cheap,value or expensive depending on how your target customer perceives  you.

2.You are what your customers think you are.It has nothing to do with the price on the bar code

3.Quality is in the head and not necessarily in the product.It is up to you how you drive “quality” and “price”  in the mind of the consumer.Remember the game we used to play in school.You can always make a line look smaller by driving a bigger line next to it.Similarly you can always make a product look good Quality by by deliberately keeping a bad quality product next to it.

4.And if you can successfully do the price laddering and create value at each step you can compel the customer to do what you want her to do and at the same time make her feel that I made the right choice and ripped the retailer.

5.She loves it when she thinks she has made a fool out of you and this will make sure she keeps coming back.Get them in,sell them up and get them back.Got it ?

I am writing this post as I went to a big box retailer in Sholapur and while everything was done quite well they had completely thrown away the value which could have been captured so easily by doing a better Price laddering,branding and Private label strategy.

The power of category management is not is selling as low as possible but in selling as high as your customer can pay……..and feel happy about it.