One day while traveling in a car with my brother in law and friends we started having discussions on which car is the best? Now to tell some car as the best we had to look into a whole lot of things and the important one was the price.So we kind of settled on which is the car we should be buying if we were buying for the first time and with our own money. So the BMWs, Mercs and the Audis were out of the picture. For me almost all cars were out of the picture as I was participating in this discussion with no job and a huge education loan on my head. But I wanted to be in this conversation and I imagined myself in my old job.
We started discussing from hatchbacks going as far as SUVs like Innova and Scorpio. My brother in law had owned Scorpio and owned an Innova. According him Innova had not broken down had a good engine and good handling. The image of quality that is associated with Toyota. When it came to scorpio it was mentioned it had good power can hit high speeds easily and was rugged. Exactly the things Mahindra wants to associate itself with. So know I began thinking whether he is feeling these things because that is what he had in mind before buying them or was it unaided and unbiased opinion. A few days ago I saw my friend praising his Ford Figo on Facebook. I began to think as long as a car doesn't breakdown at crucial times the things related to feeling like great power, quality are more or less derived from brand associations.My brother in law did not remember his Scorpio breaking down but when asked the first thing that came to his mind was if you are looking for power Scorpio was the one though he had no problem with his Innova when it came to hitting high speeds.
Lesson number 1 for me was it is hard to differentiate power and handling etc unless I am real expert at it. I did go in both Innova and Scorpio and really couldn't differentiate and it's the power of peer opinion pressure that made me conform to the opinion of Power- Scorpio, Handling-Innova
Next the discussions rolled on to hatchbacks for many of us buying hatchbacks the mileage was a big factor. Even for the same car diesel and petrol variants make a lot of difference when it comes to buying. My brother in law argued the Diesel variant of the Punto he had bought was more value for money than the petrol variant. I decided to analyze this claim. His reason was to go to bangalore and come back it takes Rs.1000 of petrol and Rs.500 of diesel. Now the difference for a Petrol model and Diesel model is Rs.1 lakh. The difference in mileage is 4km/litre (16 kmpl vs 12kmpl). The difference in petrol and diesel is Rs 10 per litre. So for every litre a diesel car gives a saving of Rs.22.5 (10+4/16*50, assuming petrol price is Rs.50)over a petrol car.
Now to the interesting fact: To breakeven with Rs.1lakh differential a diesel car should consume 4444 litres of diesel or should cover 71104 Km. Now I asked my brother in law how long does he keep his car the answer till it reaches 60 thousand to 7 thousand km. I have not taken the present value of the 1 lakh differential. So rational decision making says if people are going use cars mostly in city and sell it once it reaches close to 70,000 km then they should be buying a petrol car
But it doesn't work that way the classic rule of "Segregate gains and aggregate loses" does work. People don't mind paying a high price initially if the gains are distributed and visible. A saving of rs 22.5 per litre does look significant (half litre diesel price) this is what was the difference between a Diesel and petrol car.
So even though a car is a high involvement category where people seek a lot of information and it is believed they take rational decisions. The decisions are not so rational after all....
Saturday, December 25, 2010
Saturday, June 19, 2010
Advertising
Advertising, to put it simple is a way of creating awareness about a product and its features so that it creates an interest in a consumer. The one question I wanted to explore was “Can advertising persuade a consumer to buy a product?” If so which form of advertising is much better? When it comes to form of advertising the number of forms is huge. Advertising through Press releases, print ads in magazines, billboards, ads on T-shirts of sportsmen, TV advertisements etc. I did not do a thorough research to point out that so and so is the best advertising tool. But I am writing about the form, which I found was very effective, after talking with a host of people.
I interacted with around 20 customers and found out that most of them will buy a product if its features are appealing. So an Ad should bring out the best features of a product. In many marketing situations TV Ads do not work that well. For example take B2B marketing or technology sale. We rarely see television ads. A TV ad is of a limited duration (around 30 seconds at max normally) and it is not possible to create the kind of awareness and talk about product features that would result in a customer inquiring about the product. Intel is one of the technology companies that do a TV ad. But its brand name and the customer mind share it already has makes it easy. Intel doesn’t have to explain its technology in depth. But can simply say which is the new chip they have come up with. They could be sure a customer buying a new computer would end up enquiring whether it has the new Intel chip. I talked with over 20 people to get an idea about the influence of advertising on products that they are already aware of. Lets take Coca Cola and PepsiCo. Many of their products are very similar and are perfect substitutes. Many people don’t care whether they are drinking Maaza or Slice. It comes down to availability and which name is easy and kind of flashy to say. PepsiCo has Nimbooz and Coke has NimbuFresh. If both are available then people preferred Nimbooz to NimbuFresh as the name is catchy and cool.
As the cost of a product increases awareness amongst target market also increases. I conducted a small survey and found out that consumers who shop (mostly consumers going to supermarket to shop) go through the features of the product. An ad itself will not result in consumers buying a product. A well made Ad (and Ads which use celebrities) will get the attention of consumers but won’t guarantee a sale. But majority of respondents agreed that once they know about a product an Ad on the same gets them to stick with the product. Either because the product, with repeated ads, is now more popular or they don’t trust brands which don’t carry any form of advertising.
One of the interesting things that I found during this small survey is many people try a product if friends recommend it. This is one of the things I too found out from my interaction with CIOs and IT heads during my internship (in technology marketing). I did have the opportunity to listen to Chethan Bhagat (he was called for an event by Fortinet, company I interned in). When somebody asked him a question on how he markets his books, his answer was he doesn’t spend anything on marketing. He simply believes in word of mouth. I do think word of mouth is the strongest form of advertising. If a company can get its consumers to vouch for its products then it simply doesn’t have to worry about advertising. Look at Apple if it comes out with an Iphone 4 a lot buzz is already created. Newspapers pick up the release. From social networking to casual talks over coffee people start talking about the new gadget. Look at social networking sites like twitter and Facebook they need little advertising. I for one moved away from Yahoo messenger to Gtalk because all my friends recommended that. In the end it was like I wouldn’t find any of my friends in Yahoo messenger.
In this day and age where consumers are well informed I don’t think there is any better way than having customers themselves as the brand ambassadors. Companies who want market share should make the customers talk…
I interacted with around 20 customers and found out that most of them will buy a product if its features are appealing. So an Ad should bring out the best features of a product. In many marketing situations TV Ads do not work that well. For example take B2B marketing or technology sale. We rarely see television ads. A TV ad is of a limited duration (around 30 seconds at max normally) and it is not possible to create the kind of awareness and talk about product features that would result in a customer inquiring about the product. Intel is one of the technology companies that do a TV ad. But its brand name and the customer mind share it already has makes it easy. Intel doesn’t have to explain its technology in depth. But can simply say which is the new chip they have come up with. They could be sure a customer buying a new computer would end up enquiring whether it has the new Intel chip. I talked with over 20 people to get an idea about the influence of advertising on products that they are already aware of. Lets take Coca Cola and PepsiCo. Many of their products are very similar and are perfect substitutes. Many people don’t care whether they are drinking Maaza or Slice. It comes down to availability and which name is easy and kind of flashy to say. PepsiCo has Nimbooz and Coke has NimbuFresh. If both are available then people preferred Nimbooz to NimbuFresh as the name is catchy and cool.
As the cost of a product increases awareness amongst target market also increases. I conducted a small survey and found out that consumers who shop (mostly consumers going to supermarket to shop) go through the features of the product. An ad itself will not result in consumers buying a product. A well made Ad (and Ads which use celebrities) will get the attention of consumers but won’t guarantee a sale. But majority of respondents agreed that once they know about a product an Ad on the same gets them to stick with the product. Either because the product, with repeated ads, is now more popular or they don’t trust brands which don’t carry any form of advertising.
One of the interesting things that I found during this small survey is many people try a product if friends recommend it. This is one of the things I too found out from my interaction with CIOs and IT heads during my internship (in technology marketing). I did have the opportunity to listen to Chethan Bhagat (he was called for an event by Fortinet, company I interned in). When somebody asked him a question on how he markets his books, his answer was he doesn’t spend anything on marketing. He simply believes in word of mouth. I do think word of mouth is the strongest form of advertising. If a company can get its consumers to vouch for its products then it simply doesn’t have to worry about advertising. Look at Apple if it comes out with an Iphone 4 a lot buzz is already created. Newspapers pick up the release. From social networking to casual talks over coffee people start talking about the new gadget. Look at social networking sites like twitter and Facebook they need little advertising. I for one moved away from Yahoo messenger to Gtalk because all my friends recommended that. In the end it was like I wouldn’t find any of my friends in Yahoo messenger.
In this day and age where consumers are well informed I don’t think there is any better way than having customers themselves as the brand ambassadors. Companies who want market share should make the customers talk…
Monday, May 10, 2010
Trend setting
When I was working on my internship project I found out one thing “people sometimes do things even when there is no requirement”. They do certain things only because that is what everybody else is doing around them. This is clearly observable in our recent bollywood movies. You read about actresses’ answers when they were asked about a smooch in the movie; she would have told that the script demanded it. Funny that we are getting almost same stories and scripts as those written 10 yrs back but nowadays the scripts are demanding kisses. (My only gripe is why is the demand stopping there?) This is an example of a trend.
On a serious note we can think about numerous trends. Lets look at Apple, they are not producing appliances based on trends but are trendsetters. Apple focuses on simplifying things and making the products look sleek and beautiful. This has helped Apple in its positioning, gaining mind share, gaining market share and create a following. Once a trend is set there will be people who follow it. Trendsetter obviously had first mover advantage but companies that ape don’t have to invest too much on R & D so they reduce their cost. This is one of the things that I observed. Once companies come out with similar products most of the time the competition is all on price. So what does the trendsetter do? This is when a trendsetter continues to exist or perishes. Those who continue to exist bring about new enhancements and add on features, which help sell the product before it can be aped and then come up with a different product. This thing is clearly evident in the Mobile market.
What about those going with the trend? We can talk about Fastrack. It identified a trend that the younger generation wanted affordable, branded and fashionable watches and sunglasses. Though competitors are there for watches and sunglasses separately there are not many under the same brand name (I can think of only TIMEX and SWATCH).
I think the difference between those going with the trend and those setting the trend are Trendsetters innovate and make people realize that they have an unfulfilled need. For example take the example of iPOD. There was a Walkman and a radio but the thing was none of them were sleek. iPOD started a trend. In the case of Fastrack they did not create an innovative thing to make people aware that there is a need to be unfulfilled but identified the gaps in the market to create a thing that satisfied a segment.
Now think of having a music player in your pocket you may think of i Pod, there may be a Nike football shoe that I want not because I need it but because everybody else who plays football prefers it. Think of social networking many of us who do not check or make friends on facebook or orkut are still there because that’s the trend. Trendsetters gain mind share even without trying hard. The goal for most companies is to be a trendsetter. (Disclaimer: These are just my views)
On a serious note we can think about numerous trends. Lets look at Apple, they are not producing appliances based on trends but are trendsetters. Apple focuses on simplifying things and making the products look sleek and beautiful. This has helped Apple in its positioning, gaining mind share, gaining market share and create a following. Once a trend is set there will be people who follow it. Trendsetter obviously had first mover advantage but companies that ape don’t have to invest too much on R & D so they reduce their cost. This is one of the things that I observed. Once companies come out with similar products most of the time the competition is all on price. So what does the trendsetter do? This is when a trendsetter continues to exist or perishes. Those who continue to exist bring about new enhancements and add on features, which help sell the product before it can be aped and then come up with a different product. This thing is clearly evident in the Mobile market.
What about those going with the trend? We can talk about Fastrack. It identified a trend that the younger generation wanted affordable, branded and fashionable watches and sunglasses. Though competitors are there for watches and sunglasses separately there are not many under the same brand name (I can think of only TIMEX and SWATCH).
I think the difference between those going with the trend and those setting the trend are Trendsetters innovate and make people realize that they have an unfulfilled need. For example take the example of iPOD. There was a Walkman and a radio but the thing was none of them were sleek. iPOD started a trend. In the case of Fastrack they did not create an innovative thing to make people aware that there is a need to be unfulfilled but identified the gaps in the market to create a thing that satisfied a segment.
Now think of having a music player in your pocket you may think of i Pod, there may be a Nike football shoe that I want not because I need it but because everybody else who plays football prefers it. Think of social networking many of us who do not check or make friends on facebook or orkut are still there because that’s the trend. Trendsetters gain mind share even without trying hard. The goal for most companies is to be a trendsetter. (Disclaimer: These are just my views)
Saturday, March 13, 2010
Budget, Elections and Spending
It's known that this year's budget is mainly focused on reducing govt spending, and putting more money in the hands of people by reducing overall income tax on individuals. But this doesn’t mean that the total income tax collected will be less. Improved economy means total income tax collected by the government will be more. Some economists believe that people are rational. That is they believe in Ricardian view that if government reduces taxes today it will make up for it by increasing taxes in the future.
I just went back in time a little bit to see how rational I was back then when I was working or how rational some of my friends are who are still working. I didn’t know that Ricardo existed back then. It simply means I was not rational ☺. There was a certain level of bank balance I wanted to maintain all else went into spending. If I had more money there were more chances that I would spend at least some considerable part of it on restaurants, real estate etc rather than saving it up. So consumptions should increase by some factor. I don’t believe it increases household saving too much. The reason is the number of taxpayers in India is around 35 million at the moment (google search ☺). Most of them (in my opinion) have a certain targeted savings, which they always try to maintain as long as they are having a job. The rest should be used to buy cars, household appliances, houses etc. This is at least what I observed when I was working.
If government is reducing its expenditure it has to be balanced by increase in investment and consumption etc (This is classical economics can be got from a book). But I want to bring in the factor of Elections to recession. The election commission has spent more than 10,0000 crores. Taking an average 200 contestants from a state and an average outlay of 5 crores from each contestant. In total around 28000 crores would be spent. But from where does this money come from? This is mostly black money. Think of it this way if there was a total Rs.100 in the economy and black money was Rs 20. That means this Rs 20 is something, which is stashed somewhere and is not in circulation. So we can say money supply is Rs.80. This sudden spending by individuals not only creates jobs for the unskilled people during elections but also suddenly adds money to the system, which was earlier simply not there for use. So using our IS-LM curve we can say that government’s liberal attitude during election year not only increases total output but this sudden infusion of money into the system also increases the output further. So elections in recession are not so bad after all.
The interesting thing is government is reducing its expenditure just after the election year. This should at least cut down the opportunities for politicians to make some money out of granting government contracts and others. Thereby decreasing black money accumulation and reducing money supply. So this should be a blessing in disguise to the economy. I wish there was some way to get the black money stashed in some of the government employees and put it back in the system ☺. But anyway this stashing up of black money might have favorably impact on inflation ☺
I am no authority on economics. Post your comments I want to learn from all my blog viewers ☺
I just went back in time a little bit to see how rational I was back then when I was working or how rational some of my friends are who are still working. I didn’t know that Ricardo existed back then. It simply means I was not rational ☺. There was a certain level of bank balance I wanted to maintain all else went into spending. If I had more money there were more chances that I would spend at least some considerable part of it on restaurants, real estate etc rather than saving it up. So consumptions should increase by some factor. I don’t believe it increases household saving too much. The reason is the number of taxpayers in India is around 35 million at the moment (google search ☺). Most of them (in my opinion) have a certain targeted savings, which they always try to maintain as long as they are having a job. The rest should be used to buy cars, household appliances, houses etc. This is at least what I observed when I was working.
If government is reducing its expenditure it has to be balanced by increase in investment and consumption etc (This is classical economics can be got from a book). But I want to bring in the factor of Elections to recession. The election commission has spent more than 10,0000 crores. Taking an average 200 contestants from a state and an average outlay of 5 crores from each contestant. In total around 28000 crores would be spent. But from where does this money come from? This is mostly black money. Think of it this way if there was a total Rs.100 in the economy and black money was Rs 20. That means this Rs 20 is something, which is stashed somewhere and is not in circulation. So we can say money supply is Rs.80. This sudden spending by individuals not only creates jobs for the unskilled people during elections but also suddenly adds money to the system, which was earlier simply not there for use. So using our IS-LM curve we can say that government’s liberal attitude during election year not only increases total output but this sudden infusion of money into the system also increases the output further. So elections in recession are not so bad after all.
The interesting thing is government is reducing its expenditure just after the election year. This should at least cut down the opportunities for politicians to make some money out of granting government contracts and others. Thereby decreasing black money accumulation and reducing money supply. So this should be a blessing in disguise to the economy. I wish there was some way to get the black money stashed in some of the government employees and put it back in the system ☺. But anyway this stashing up of black money might have favorably impact on inflation ☺
I am no authority on economics. Post your comments I want to learn from all my blog viewers ☺
Tuesday, March 2, 2010
Should you go for an MBA?
It is at this point last year after the IIM A interview that I started thinking about what if I converted my call? What next? At that point my answer was fairly simple take it. Who else doesn't want to? There are over 2 lakh guys vying for a seat. But once I joined the institute I began to think :). Most of us here were discussing is it worth it? The course is so rigorous that you don't get much time to enjoy many things like a nice long sleep without having to worry about quizzes, assignments, grades etc, do nothing, watch movies all day, and to simply roam around.
Then by the time I got used to the rigor it was time for summer placements. Day 0 was good but for those who did not get placed in Day 0 it was stressful. I am one of those guys. Now I seriously started thinking whether I was right in giving up a well paying job and no stress work to come here? There were lot of intangibles to consider like my job profile will be much better, An MBA will always give some Value add and people with MBA are normally given more responsibilities etc. But once you become a Management student the most important question you need to ask is Whether it makes any economic sense:)?
So I opened a spreadsheet. I used some of the concepts I learned from painful Finance and Accounting classes to see whether coming here really makes an economic sense. Some of the assumptions I have made are on an average a student joining IIM A would have earned 4lakh per annum after tax. If in case he did not come here and continued with that job by the end of another 2 years on an average he would be earning 9 lakh per annum
For serious MBA guys: The other factors I have taken into consideration are discount rate is 15% ( which is what one could have earned from investing in Mutual fund, I have neglected risk factors involved :)) Tax slabs are taken as per 2010 tax budget. The link to my spreadsheet for interested people
https://docs.google.com/leaf?id=0B5senRMGKBIgYTgzZDRiMzQtZmIwMS00YTUyLTk2MTEtNjg5OTUzYTcwZjg0&sort=name&layout=list&num=50
If I assume that I would have been earning 9lakh per annum if I stayed in my current job at the end of the year that I complete my MBA then I need to earn on an average Rs 1427870.893 to break even in 5 years. In case you are wondering what this break even is that means to equal what I would have earned by investing the money I spent on MBA plus what I would be earning as salary I would take 5 years if I get a job that pays me around 14 lakh (including tax) per annum. Not bad huh? Of course this not a perfect model people can come with different assumptions and make a better model. So I have attached the link to my spread sheet. If you change the number of years to 4 then you should be earning close to 16 lakh. You can play around with it
So it seems like it does make sense to get an MBA if average salary offered in IIM A turns out to be above 12 lakh. Based on the fee you pay and the number of years in which you want to catch up with a friend who is not doing MBA but continuing with his job you can find out what should be the Average salary package in that particular school
Here is what my excel sheet consists in brief
Discount rate 0.15
Investments -625000 -625000
Opportunity loss in leaving job -400000 -460000
Mess charges -40000 -40000
Other food charges -8100 -8100
Going to restaurants -4500 -4500
Travelling expense -20000 -20000
Misc charges -4800 -4800
Money earned from Internship 60000 0
Cash flow -1042400 -1162400
If Invested in MF -1378574 -1010782.609
Cash at the start of 3rd Year -2389356.609
Interest to be paid per annum -125000
Tax 2010 tax breaks
Number of years you wish to break even in 5
Interest tax shield -187500
Salary that you should earn after tax per annum 1210669.918
Adjusted for Tax 1427870.893
The two columns are for 2 years ...
Do post your comments
Modified the excel sheet a little bit to allow for some flexiblity. Sharing the link to it
https://docs.google.com/leaf?id=0B5senRMGKBIgOTEzNWJlZDItYjQ5Mi00NjY2LWJlMDgtNDEwMDE2NDhmOGM1&hl=en
Then by the time I got used to the rigor it was time for summer placements. Day 0 was good but for those who did not get placed in Day 0 it was stressful. I am one of those guys. Now I seriously started thinking whether I was right in giving up a well paying job and no stress work to come here? There were lot of intangibles to consider like my job profile will be much better, An MBA will always give some Value add and people with MBA are normally given more responsibilities etc. But once you become a Management student the most important question you need to ask is Whether it makes any economic sense:)?
So I opened a spreadsheet. I used some of the concepts I learned from painful Finance and Accounting classes to see whether coming here really makes an economic sense. Some of the assumptions I have made are on an average a student joining IIM A would have earned 4lakh per annum after tax. If in case he did not come here and continued with that job by the end of another 2 years on an average he would be earning 9 lakh per annum
For serious MBA guys: The other factors I have taken into consideration are discount rate is 15% ( which is what one could have earned from investing in Mutual fund, I have neglected risk factors involved :)) Tax slabs are taken as per 2010 tax budget. The link to my spreadsheet for interested people
https://docs.google.com/leaf?id=0B5senRMGKBIgYTgzZDRiMzQtZmIwMS00YTUyLTk2MTEtNjg5OTUzYTcwZjg0&sort=name&layout=list&num=50
If I assume that I would have been earning 9lakh per annum if I stayed in my current job at the end of the year that I complete my MBA then I need to earn on an average Rs 1427870.893 to break even in 5 years. In case you are wondering what this break even is that means to equal what I would have earned by investing the money I spent on MBA plus what I would be earning as salary I would take 5 years if I get a job that pays me around 14 lakh (including tax) per annum. Not bad huh? Of course this not a perfect model people can come with different assumptions and make a better model. So I have attached the link to my spread sheet. If you change the number of years to 4 then you should be earning close to 16 lakh. You can play around with it
So it seems like it does make sense to get an MBA if average salary offered in IIM A turns out to be above 12 lakh. Based on the fee you pay and the number of years in which you want to catch up with a friend who is not doing MBA but continuing with his job you can find out what should be the Average salary package in that particular school
Here is what my excel sheet consists in brief
Discount rate 0.15
Investments -625000 -625000
Opportunity loss in leaving job -400000 -460000
Mess charges -40000 -40000
Other food charges -8100 -8100
Going to restaurants -4500 -4500
Travelling expense -20000 -20000
Misc charges -4800 -4800
Money earned from Internship 60000 0
Cash flow -1042400 -1162400
If Invested in MF -1378574 -1010782.609
Cash at the start of 3rd Year -2389356.609
Interest to be paid per annum -125000
Tax 2010 tax breaks
Number of years you wish to break even in 5
Interest tax shield -187500
Salary that you should earn after tax per annum 1210669.918
Adjusted for Tax 1427870.893
The two columns are for 2 years ...
Do post your comments
Modified the excel sheet a little bit to allow for some flexiblity. Sharing the link to it
https://docs.google.com/leaf?id=0B5senRMGKBIgOTEzNWJlZDItYjQ5Mi00NjY2LWJlMDgtNDEwMDE2NDhmOGM1&hl=en
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