Thursday, August 30, 2007

Buy a Computer Table and get a Computer Free

This year, Onam, the most important festival in the state of Kerala, was celebrated with the usual pomp and circumstance. As usual most of the retail stores came up with fantastic, super-saver Onam offers. Some of them even bordering the limits of believability. These offers inevitably propels the sales and profits in these stores. A little critical thinking reveals some interesting deductions about these special offers. These are not truly specific to Onam offers and should apply to any other offer as well.

No store would want to sell their products at a loss for a sufficiently long duration of time or large volume of sales. Unless, there was something wrong with the product or the store, that would have resulted in an inability on the retailer's part to sell the product at all, or an inability to sell all of the procured stock. So obviously these guys are selling the products at a profit

If a store is making a decent profit on their sales, in spite of the special offer, then that would mean one of two things - a) They were already making a much higher profit when the offer was not on, or b) They had hiked up the prices to provide enough leeway for unbelievable price slashes.

It is interesting to see that most, if not all, people fall for these gimmicks. It is as if they totally forget basic math when they see these kind of offers. Sometimes some of the offers are so funny that even a primary school student could calculate that these customers are being taken for a ride by these stores.

Since I am into the computer retail business I monitor most of the special offers in the local market. Most stores take around 1.5K to 2K margin on computers. During this Onam season I have seen offers that claimed to give goods worth more than 6K free with purchases of computers. The prices were so much jacked up to include the 6K plus their normal margins.

I don't believe in giving such tall claims. We believe in a shoot straight policy at Zyxware and did not bother giving such offers during the last onam. I had half a mind to give an offer though - buy a computer table (for 20K) and get a computer free :). I am sure I would have had a few enquiries even if I had given that offer.

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Why are queues fair?

If you live in India or if you have been to India you would have seen the ineffectiveness or total lack of queues at places you would expect them. It is not a total lack of queues but rather a glaring absence in places where they would make a lot of difference to the ease of access to the service or location for the people involved.

You see queues in Bus/Railway ticketing counters but not for boarding trains or buses. You see queues at Movie Theaters but not in banks or post offices. The rule of thumb is that you see queues where they are enforced and never when they are not. People do not realize that queues would in fact reduce the average waiting time for people and that it would increase the efficiency of the system and comfort levels for the people and decrease the stress levels of service providers as well as customers.

What is a queue? A queue is a protocol where people are served on a first come, first serve basis. But why is a queue fair? When a service is provided to a set of customer and when all the customers can not be served in one go, a selection has to be made from the set of customers to figure out who gets served first. This selection has to be based on some factor so that the selection concept can be used for different kinds of services. In a simple first in first out queue system the differentiating factor is taken as the time when a person arrives at the location of the service provider.

But why is the time of arrival considered a fair factor. The reason is simple - it is one of the least discriminating factors that can be used. When a queue system is not in place, the stronger and more aggressive people gets served first, and there by the factor used, becomes strength and aggression. Lot of people might not have too much control over their relative strengths - eg women vs men, aged vs young - and are bound to be served much later on an average, at all the places they go to get services, than the stronger and aggressive parties.

Most, if not all, people trying to get a service have equal or almost equal chances in controlling their time of arrival at the location of the service. It is this aspect of queue systems that makes them fair. It should also be noted that queues are not always perfectly fair. Physically challenged people or aged people have slightly lesser control over their times of arrival at the location of service. It is for this reason that some places keep separate queues for such categories of people.

So next time you see a rush near a service location - please think about this - and if you have any sense of fairness stand in a queue or try to form a queue. If three or four people forms a queue near a rush then crowd psychology will kick in and following people will start falling into the queue. So don't wait for somebody else, be a leader and start the queue at places where you don't see one and where you feel you need one.

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Sunday, August 5, 2007

Impact of Advertisements and the Early Player Advantage in Marketing

I had recently come across the 4 P's in marketing, viz. Product, Price, Place, Promotion. Selling the right product at the right price at the right place after the right promotion is called marketing. Normally people (including myself till recently) think of only promotion(advertising and branding) but in reality it involves lot of different steps till the final transaction - ie the sale.

Here I would like to take a look at one of these four P's - Promotion. Ideally promotion is supposed to negate the effects of information asymmetry in the market by letting prospective customers know of the truth(all aspects good and bad) about your product and why it should be preferred over your competitor's product. Promotion should thus tend to lead to Information symmetry. In reality this is far from what is happening in the market. Promotion seldom lets the market know about all aspects about a product and often it dresses falsehood in the garb of truth.

Let us consider two products A and B by two companies X and Y respectively. To illustrate the effects of promotion in the actual sales of the product, revenues of the companies, and even the qualities of the products we will be considering several scenarios for the two products and the two companies.

1) Let A and B be of similar quality and X has more capital than Y. Since X has more capital than Y, X would be able to invest more into marketing and reach more people and hence sell more than Y. Selling more should give X more revenues than Y and the growth rates of X should be more than Y and X leading to even further differences in capital between them.

2) Now consider the same scenario as above but where A is slightly inferior to B. Since X has more capital than Y, X would be able to invest more into marketing and reach more people. If the quality difference is small and the capital difference is high enough to cover the extra marketing costs to cover the reduction in quality, X should be able to sell more A than Y sell B. Since selling more should give X more revenues than Y and the growth rates of X should be more than Y and X leading to even further differences in capital between them.

3) Suppose A is vastly inferior to B and X has vastly more capital than Y. The conclusion of scenario 2 applies here provided the product A meets the basic requirements for such kinds of products. B would still capture the market where Y is playing but the market size will be very small and with the small growth rates would take forever to cover the same market as X.

4) Consider the scenario where A was the only product in the market and X a very large company with sufficiently large capital. If Y now enters the market with product B, which is comparable, lower or better in quality than A, irrespective of the quality Y would have to invest enough into marketing such that the market share growth of B would pay for the costs in marketing while leaving enough for the growth of the company Y.

These are only hypothetical cases and the actual correlation with the increase of revenues and promotional activities would depend a lot on other factors as well. The point I wanted to make was the large effects of promotion on revenue growth. It is not just about the quality of the product that decides how well the product sells in the market (which is a pity). It depends a lot on how successfully companies manipulate the information asymmetry in the market. This I feel is unfair. Additionally the early player advantage is also slightly unfair in cases where the quality of product of newer player is superior to the earlier players.

The reason why the above two factors are considered unfair is that they are not normally effects of the efforts of the person, which should normally translate to the quality of the product. Sometimes they could be, but even in such cases the advantages are unfair when the quality of the losing product is better.

If we had a system where we could put perfect information in the market, it should theoretically take out, to a certain limit, the dependencies on revenues and growth on such unfair factors as above. Even with perfect information people would still like to deceive themselves and make irrational choices. But still we would have a system where revenues and growth would be more correlated to quality than what we have in the current system.

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Wednesday, August 1, 2007

Lists of vehicle registration numbers that have gone through my family's hands

I just had to get this list of numbers off my head. Thought this might be the best place to write it down. These are the vehicle numbers of the vehicles that either myself or my father owned or still owns.

KLD 6436 KL5 1946 KL1Q 5710 KL1U 7095 KL1AB 2508 EMC 3282 FBT 9631 PWS 47P KL1AM 6460

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