Collection boxes for charity

The coin or collection boxes placed by charitable organisations/ NGOs in most retail outlets is a common sight. To the extent that I feel that they have become blind spots in most cases. Would like to share a few thoughts about these.

1. I dont see this in most corporate retail chains. Is it that they do not support such charity or is it that getting permission is too difficult. Whatever the reason, this seems to be missing in these stores.

2. These boxes are an excellent way of fulfilling corporate social responsibility and can also be leveraged to overcome the lack of change. Instead of handing out toffees and chocolates, the cashier can have a small pre-printed slip of paper which has space for Name, Bill Number and the amount to be donated. The change due to the customer can be mentioned as the amount and dropped into the box, with the customers signature. Individually these might be a few paise each. But imagine the overall total when you apply the power of collective effort! All the charity would have to do is hand over these slips with a statement to collect the money.

Of course the truly evolved way of doing this would be to enable the customer to pay the donation at the cash till along with their bill and the charity gets the amount every week or month.

Hopefully someone would think about this and we should be able to channelise the change towards deserving people instead of taking toffees home!!

Seeing Red!!

When the Foodworld stores started in Chennai in 1996, there were posters with a specific design predominantly in yellow and red. Obviously the kirana store operators realized that this has some impact on customers and started copying it. Last heard a small store in coastal Andhra had copied this poster including the logo of the chain stores!! Imitation is surely the best form of flattery.

So, what was the effect that led to these posters to be copied? Its all about colors and the sub conscious impact they have on all of us.

The study of the effect that colors have on humans is called Color psychology. This is used extensively in most retail environments to create an overall ambience that fits in with the value proposition and imagery that the brand seeks to establish.

Ask a roomful of people for their favorite color and the majority would vote for Blue. Is it any wonder that many brands tend to use blue. Blue being a very calming color and actually helps release calming chemicals in our body definitely has a role in this. It has been proven in studies that this calming effect increases performance and there have been studies where weight lifters have been able to lift more weights in a blue background.

On the other hand Red is the color of energy. It has been studied that in a red environment the heart beat and breathing increases. It is said that because of the physical impact people tend to veer more towards riskier behavior such as betting big. Is it any wonder why casinos have red carpeting and seating?

The other color used extensively in retail is Yellow. The color associated with brightness, sun and optimism. However this color also increases ones metabolism and there have been studies that show increased discomfort in an over powering yellow environment.

Most fast food outlets use red and yellow extensively. Apart from being powerful, dominant colors which are very noticeable, their effect on increased metabolism stimulates appetite and gets more sales. This combination makes people hungry as also vaguely uncomfortable and hence they quickly eat and leave. More customers eating fast, equals more business.

In retail these color applications studies have tremendous use and are used extensively in Brand, designing the interiors, customer communication, etc. Although there are differences in color associations across countries and cultures, a few common effects make this a very important tool in retail design.

Using the color red to communicate offers and freebies is directly linked to its impact on us. In a manner of speaking bulls are not the only animals affected by a red flag!

Timeless Endurance!

The picture is of my late father’s Rolex wrist watch which is more than 50 years old! This was gifted to him on the occasion of his marriage. I occasionally wear it and whenever I have taken it out to wind it up and wear it, it has worked like a charm without missing a beat.
My father used to tell a story about this watch which drives home the basis of what creates a sustainable brand value.

Once, after about 20 odd years of using the watch, it developed some problem. Coincidentally this was when he was travelling in Europe. He promptly took it for service to one of the Rolex centers in Geneva. The counter executive took a look at the watch and reverted that since the watch was more than 2 decades old, they would find it difficult to obtain the parts to service it, and even if they did it would take time. My father explained the sentimental value of the watch – that it was his wedding gift and he was given the Rolex because his wife’s father believed it was forever! He also told them that he was going back to India in just a couple of days and could they help?

The request was escalated and the service centre in-charge was called. He examined the watch and upon hearing the ‘value’ attached to it, assured my father that he would personally get the details pertaining to this model and have it serviced.

If I recollect correctly, the parts of the watch were procured from Rolex HO within 24 hours and the watch impeccably serviced and returned. All this in a day and age when Email, Internet or Mobile phones did not exist! And that was the last time it was serviced and that must have been more than a few decades ago. What a simple act, but such an impact. Strong enough; that I remember this story every time I wear the watch and today I am sharing the same with all of you. If I decide to gift something of timeless appeal, no prizes for guessing what I would buy.

The hidden advantage!

We have all been reading about how corporate retail would wipe out the conventional traders and render millions jobless. The picture of David Vs Goliath and the helplessness of these traders has been painted well enough for major national parties to include that FDI would not be allowed in retail.

Interesting. It proves the point that if repeated often enough the most outlandish idea can become gospel truth!

When the first Foodworld store opened in C P Ramasamy Road, Chennai there used to be a street vendor of fruits who had set up shop on the platform. He would sell from the usual small stalls found by the road side which would not be larger than your average computer table. This was in 1996. We soon realized that he had a simple competitive strategy. He would ask customers what was the price of the fruit at Foodworld and offer to sell it at a Rupee or two less. Plus his personal attention and assurances of quality ensured that he survived. This is in spite of repeated instances of encroachment clearance drives by the corporation and police officials. See for yourself how his business is today!

Hope you noticed how close the fruit vendor is to the store and also how he has grown from a stall to what he is today.

How is this possible? Simply because of the huge disparity in the cost structure of corporate retail Vs conventional traders, leave alone street vendors.

A corporate retailer has to pay rentals at market rate which could be as high as Rs.40 to Rs. 50 per sq. ft. or even higher. Employees are paid as per the labour law which means minimum wages, PF, etc. All the required licenses and fees have to be paid, including a special fee to keep the store open for 7 days. This is because as per the shops and establishments act, a store has to have a weekly off. This in turn is because retail is not recognized as an industry and hence specific needs for retail are not addresses. It’s a long story and best told separately.
Now compare this to the conventional trader.

I have known of instances where the shop keeper pays a rental of a few hundred rupees because the shop has been there for years and the rent was subject to the erstwhile rent control act. This would translate to a rental of less than a rupee per sq. ft.! Of course, we have also seen various stores operating out of what was originally a garage or the front part of a house, modified for a store. Rent accounts for as much as 5 – 6% of a corporate retailers cost break up. Imagine the buffer that a conventional trader enjoys in this single cost structure alone!

The next largest share of cost is with regards to manpower. Again being roughly 5% of the total cost. We have all seen the kind of staff/ helpers that are present in conventional outlets. They are usually relatives or known people from the native village of the shop keeper. They would be paid a meager amount, plus provided food and minimal clothing. Usually they stay at the shop or at the shop keepers home and also double up as domestic help. Talk of enhancing productivity!
Do you really think that conventional traders would spend so much on manpower as compared to a corporate chain?

Plus you have a whole host of smaller cushions to be leveraged like savings on licenses, commercial tax rates for electricity, etc.

As part of an earlier assignment I was tasked with registering conventional traders and businesses for membership. The initial criterion was sales tax registration. When my team came back and reported that a majority claimed not to have that a few other business licenses were included after getting approval of the same. Imagine my surprise when repeatedly I would hear that stores did not have even weights and measures registration, leave alone shops and establishment licenses. I was personally present when we walked into a old, well established, large saree shop. The owner was outraged when we requested his sales tax number for issuing the membership. He said “No one has dared asked me for sales tax registration for decades. Who are you to suggest that I should have a sales tax registration”.

I rest my case!

Where is the real advantage? The conventional trader requires a far lesser sales turnover to break even as compared to a corporate chain. As also, they are equipped to fight on the pricing front by discounting and still make money.

The only disadvantage would be in terms of scalability which would enable some cost benefits due to aggregating volumes. However, given the current scenario the cost structure advantage is in the advantage of the conventional and corporate chains would require a far bigger level to volume aggregation to counter that.

Lastly, we don’t have clearly demarcated Central Business Districts (CBD) and residential zones. As such requirements for an "around the corner" conventional store would never cease. At least, in the foreseeable future.

I wonder who the helpless one is!

MRP; Do we need it?

Maximum Retail Price or MRP as we all know it is unique to our country. India is possibly amongst a handful of countries where the MRP system is in vogue. In fact if one were to do a Google search about MRP, you would mostly find links to material requirement planning!

MRP is the defined price above which any product cannot be sold. This is required as per the Weights and Measures Act as also for determining the Central Excise Duty. Initially the manufacturers had the option of printing this as a number without taxes or an all inclusive price including taxes. Subsequent to several instances where the ambiguity of “taxes extra” was misused to overcharge the customers, a standardized version of the MRP, inclusive of all taxes is more in vogue as of now.

There are 3 sides to this story.

• The excise duty to be paid by the manufacturer is calculated basis the MRP which has been declared. Why it cannot be calculated basis the selling price by the manufacturer to their dealers/ stockists is an interesting hypothesis. That’s a long story and starts with the socialistic/ license & high tax regime of yester years. Shall dwell upon that later. Suffice to say that the trust that the amount declared as the selling price is the correct figure is not there. It would not be feasible for manufacturers to print this on the products and hence there is always a doubt that the declared price might be lower than the actual price, hence lower tax realization. Sales Tax was also linked to MRP, thankfully we are moving away from that towards VAT.
• The manufacturers face an interesting challenge. Each state has their own set of taxes and rates for the same. Then how do they print the price inclusive of taxes? That’s the interesting part. My guess is that they have averaged out the taxes basis past sales trends and built that into the all inclusive number.
• The retailer, especially in the context of corporate retail has to live with this constraint of a MRP. Why a constraint? Simply put, this is the one constant in the operating environment when every other variable changes for the retailer. Hence it is near impossible to use pricing as an effective element of the value proposition.

In most of the countries the way the pricing system works is basis the purchase price plus market dynamics. Volumes enable the retailer to negotiate the buying price effectively and then decide how and where his margins should be invested, for optimum returns. For example the retailer might have stores in commercial/ high traffic areas like a station or an airport. This becomes possible because the retailer can charge more for his products as the value proposition is more of a convenience rather than savings. On the other hand in a large format, suburban store the rents are lower and that can be effectively utilized to offer lower prices to drive volume sales.

Funnily enough this system works in India too, but not for corporate retailers and definitely to the detriment of the consumers and the government. All of us have paid more for soft drinks or processed food at a station or an airport or in a mall. This happens all the while. So, where is the MRP? Technically we can file a complaint of overcharging and action would be taken against the person who sells above the MRP. But does that happen practically? Never.

Most operators often get away with this by ‘taking care’ of local officials or by getting around the system. They simply open the packaging and sell the product. In which case the weights and measures act is no longer applicable!

We had gone to a pizza outlet of an international chain and ordered including soft drinks. One of the persons did not want ice in the soft drink and preferred it at room temperature. The staff came back after some time and said that they could not serve the drink at room temperature. Upon prodding he confessed that the vending machine was out of order and they were serving the soft drinks from PET bottles which were all in the fridge and hence quite cold. We then requested him to get the PET and leave it outside for a while and we would have it once it had warmed up a bit. He again declined and said that he could only serve it in glasses.

After some thought I realized what the game was! A 2 litre PET bottle costs approximately Rs. 50/- as per the MRP. If I recall correctly a glass of soft drink was Rs. 30/- and would typically have 300 – 350 ml. Now do your math! That’s not taking into account the fact that the purchase price of that PET bottle would have been lesser than Rs. 50/-.

Nowadays such enforced profits are squeezed out of consumers under the pretext of security due to which one is not allowed to carry anything into malls, amusement parks, etc.

Only in a few instances have I seen the law being followed while compensating for the operational costs. The packaging clearly mentions that it has been specially packed, thereby differentiating itself from what is in the market.

So, the question is who does MRP benefit? Why should it not be scrapped?

In my view it benefits no one and least of all the consumer. Anyways, in today’s competitive environment the retail operators have to match prices and have to remain competitive. The conventional trade does not need this as their cost structure is fairly constant and definitely lesser than that of corporate retail.

So, why not remove this glass ceiling and allow free pricing. Especially when we are moving towards a consumer centric, free market environment, this should be amongst the first steps to be taken. Imagine a world without MRP. Imagine retailers being able to leverage one of the most important ‘P’s’ of marketing.

If this is True, its a shame.

Being the passionate voter that I am, I have been chasing after the appropriate authorities to get my voter’s photo id card as there is an ongoing campaign of verification and reissue of cards in Chennai.

Over the past few months we have submitted our passport pictures FOUR times. The first couple of times vague people came to our home and collected the pictures after showing us documents validating our name and address.

Once I even has the ID card of the person who had come to collect the pictures scanned and took his acknowledgement on a printout. Subsequently when someone else came asking for the pictures again, I showed this acknowledgement. The response was a casual shrug and a simple; give your pictures if you want the photo id card!

Yesterday, yet again we had a person coming and asking us for the pictures and we went to give the same to a corporation office today morning. His crib about the additional responsibility and nonchalance about what might have happened to the earlier pictures was a reality in Indian government service.

As part of the cribbing this person told us that the election commission has for the first time officially notified that compensation of Rs. 5 and 10 Lakhs would be given for those on election duty in case of disability or death respectively.

If this is true, it is a sad. The good part is someone is sensitive enough think of compensating a person’s loss. But imagine the implications of this.
Most government officials on election duty are drafted into this and have to do the same apart from their regular work. What would be their motivation to enforce a free and fair election if the underlying threat of disability or death has been officially acknowledged?

My discomfort is not with the compensation for loss, it lies with the acceptance of violence in elections. A process which is supposed to reflect the choice of the country is becoming a sham. Educated people not voting is adding to the problem.

Its a shame.

P.S. - Like Major Bhargava commented on a previous post of mine. I am not giving up. After all I have only one counrty! I hope you all dont!!

Query from a reader about Multi Level Marketing

Another query from Mr. Ginil George - Despite strong retail presence and conveniences of other FMCG companies, how can companies like Amway, Forever life products, etc be successful with products which are not even approved by FDA?

I don’t know whether these products are tested or certified and therefore would not like to comment on that. Having said that, there are many so called Ayurvedic/ natural products which are also sold without any kind of testing. This is more a refelction of the laws that given consumer safety and rights and how they are enforced.

Multi level marketing has always been a topic of hot debate and deep passion. A search on the net would throw up equal number of love and hate sites for such marketing organisations. How is this concept successful? It leverages 2 basic human traits –

- Hope
- Social connect/ Relationships

A dispassionate understanding of the numbers would show that not everyone in the network can hope to make it big. In fact sometimes they find it hard pressed to even sell the first set of products given. Yet, in a country like ours any kind of hope, however improbable is cherished and used as a beacon for daily life. So, it is quite understandable why the network for such organisations have managed to grow so well and swell in numbers.

Second is the famous Indian trait of knowing someone everywhere and leveraging that network. In this context would like to share a joke.

One of our ubiquitous brethrens (Lets call him Babu) was working in a company and a new boss joined. He introduced himself and boasted that the boss can ask him to get anything done as he knows almost everyone in the world. The boss wanted to cut him down to size and said, that he wanted to speak to the PM. Babu said, no problem and whipped out his mobile, dialled and handed the phone to his boss. Completely stunned, the boss said hello and realised he was indeed speaking to the PM. Now that the ante was upped, he wanted to see how far it would go and kept reeling of famous personalities and Babu and his mobile went on a calling spree. Finally the boss said, ‘OK, introduce me to the Pope”. Babu says, no problem and off they fly to Italy. Babu tells his boss to wait while he organises the meeting. The boss feels smug thinking that Babu is going to disappear. Suddenly the there is a cheer and the Pope steps out in the balcony to greet the crowds. The boss is aghast to see babu standing next to the pope waving at him. He turns to someone in crowd and says do you know who is standing there on the balcony? That guy says, “Of course. Its Babu, but who is that next to him”.

Ín such a context of social connects and quid pro quo, if multi level marketing does not work, where would it?

Lastly I really don’t know how much of a consumer penetration these products have. With such a large base of sales agents/ business associates or whatever they are called, maybe they are the prime consumers of these products! After all, a fairly large sum of money is paid by them for registration and towards the first lot of products. I say this with a fair sense of certainty as the pricing of these products are significantly higher than most FMCG equivalents.

However, have not been involved with any multi level marketing system and can comment only about the view from outside. Maybe it is better or far worse!

Query from a reader about Indian Consumers

Query from Mr. Ginil George - Why are Indians as consumers gullible? Is it because we are not mature shoppers despite being around for close to 5000 years?

An interesting question and something I always speak about when talking about retail marketing.

None of us are qualified to be consumers! A provocative statement, but true.

At best we can read the labels on some of the packaged products and make some informed decisions. But when there are no labels to guide us, we are lost and rely on someone else’s professed capability. The basic fact of shopping being a habit is largely driven by this reality. Over a period of time we tend to stick to a store because we trust the store to sell us the right products. The best example for this behaviour is the fact that most of us would ask a medical store person to suggest medicines for some of the simpler ailments. Chemicals that we are adding to our human system!

This trait is also one of the key drivers of brands and loyalty to brands. Over a period of time brands stand for trust and faith. As consumers we trust the claims of brands because we trust. If one were to be truly rationale would one buy water enriched with Oxygen? After all water is H2O. So, when water is enriched with oxygen, would it become H2O2?? Or does it become an aerated drink?

In that context not only Indians, every consumer of the world is gullible. But is that truly being gullible? I would prefer to think that the consumers are trusting. Does not trust create great brands? As a marketer I would be devastated if consumers lost this capability to trust.

Abraham Lincoln said “You can fool some people for some time. You cant fool all the people, all the time”. Same is the logic with regards to our trust as a consumer. When the trust is let down and done obviously, consumers move on. A famous tea brand which was almost generic to the category started losing share and sales started dropping. When a qualitative study was done to determine why loyal customers were switching, the reasons all resonated with a single thought; “I felt let down when the quality dropped. I had trusted this brand so much”.