Vivek Kaul
Tetsuor Matsuzawa is the director of the Primate Research Institute at Kyoto University in Japan. Among other things, Matsuzawa has taught a chimpanzee named ‘Ai’ to recognize the number zero.
As Alex Bellos writes in Alex’s Adventures in Numberland, “Ai had mastered the cardinality of the digits from 1 to 9…Matsuzawa then introduced the concept of zero. Ai picked up the cardinality of the symbol easily. Whenever a square appeared on the screen with nothing in it, she would tap the digit.”
So human beings are not the only ones to understand the concept of zero and what it means these days. Even chimpanzees do.
But one individual who does not seem to understand the concept of zero is Finance Minister P Chidambaram. He said on Friday that the government of India did not incur any losses by giving away coal blocks for free, while the Comptroller and Auditor General (CAG) of India put the losses at Rs 1,86,000 crore.
“If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,” said Chidambaram. So what he essentially meant was that the government incurred zero losses by giving away the coal blocks for free.
Let’s go into some detail to try and understand why Chidambaram does not understand – or pretends he doesn’t – the concept of zero, his education credentials of having studied at Harvard Business School (HBS) notwithstanding. But then, even George Bush studied at HBS.
Between 2004 and 2011, the government allocated 218 coal blocks to private sector and public sector companies (including ultra mega power projects). Of these, the major allocations were made between 2004 and 2009 with only two allocations being made in 2010 and 2011. Twenty-one allocations made during the period have since been cancelled.
“If coal is not mined, where is the loss? The loss will only occur if coal is sold at a certain price or undervalued,” said Chidambaram.
These coal blocks were given away for free. This was done in order to increase the total coal production in the country. The government-owned Coal India Ltd, which accounts for 80 percent of the total coal production in the country, hasn’t been able to produce enough to meet the growing energy needs of the country.
Between 1 April 2004 and 31 March 2012, the production of coal by Coal India has increased by just 65 million tonnes to 436 million tonnes. This means a growth of 2.3 percent per year on an average.
Hence, to increase the overall production, the government gave away coal blocks for free so that power plants, including captive plants, are not starved of coal.
The CAG put the losses on giving away these blocks at Rs 1,86,000 crore. They used a certain methodology to arrive at the figure. First and foremost the blocks given to the public sector companies were ignored while computing losses. Secondly, only open-cast mines were considered while calculating these losses, underground mines were ignored.
The coal that is available in a block is referred to as geological reserve. But due to various reasons, including those relating to safety, the entire coal cannot be mined. What can be mined is referred to as an extractable reserve. The extractable reserves of these blocks (after ignoring the public sector companies and the underground mines) came to around 6,282.5 million tonnes. The average benefit per tonne was estimated to be at Rs 295.41.
As Abhishek Tyagi and Rajesh Panjwani of CLSA write in a report dated 21 August 2012, “The average benefit per tonne has been arrived at by first, taking the difference between the average sale price (Rs 1,028.42) per tonne for all grades of CIL (Coal India Ltd) coal for 2010-11 and the average cost of production (Rs 583.01) per tonne for all grades of CIL coal for 2010-11. Secondly, as advised by the ministry of coal vide letter dated 15 March 2012, a further allowance of Rs 150 per tonne has been made for financing cost. Accordingly, the average benefit of Rs 295.41 per tonne has been applied to the extractable reserve of 6,282.5 million tonnes calculated as above.”
Using this very very conservative methodology the losses were calculated to be at Rs 1,85,591.33 crore (Rs 295.41 x 6,282.5million tonnes) by the CAG.
These coal blocks, after being handed over for free, have been producing very little coal. Guidelines issued by the coal ministry call for captive blocks to start production within 36 or 42 months. According to CAG, these blocks were producing around 34.64 million tonnes of coal as on 31 March 2011. This is minuscule in comparison to the extractable reserves of 6,282.5 million tonnes that these blocks are supposed to have.
The fact that there has been very little production of coal is what Chidamabaram was referring to when he said that if coal has not been mined, how can there be a loss?
But this is a specious argument to make and in no way takes away the fact that the government of India gave away coal blocks for free. The CAG needed a method to calculate the losses on account of this. And it went about it in the best possible way. It essentially assumed that if the government had sold the coal that could be extracted from these mines it would have made around Rs 1,86,000 crore. In fact, by not taking into account the blocks given to public sector companies and and the underground mines, CAG underestimated the quantum of the loss.
The CAG can be criticised for not taking the time value of money into account. But the moot point is that whatever the assumptions made to calculate the losses, the resulting number would have been very big. And that is something that the government cannot shy away from.
Chidambaram is basically trying to confuse us by mixing two issues here. One is the fact that the government gave away the blocks for free. And another is the inability of the companies who got these blocks to start mining coal. Just because these companies haven’t been able to mine coal doesn’t mean that the government of India did not face a loss by giving away the mines for free.
All this does not change the fact that between 2006 and 2009 the Congress-led UPA government gave away 146 coal blocks to private and public sector companies for free. These blocks had geological reserves amounting to a total of around 40 billion tonnes of coal.
The CAG, in its report, points out that India has geological reserves of coal amounting to around 286 billion tonnes. Of this nearly 40 billion tonnes, or nearly 14 per cent, was given away free.
If Chidambaram still feels this means zero losses, then I guess we will have to redefine the entire concept of zero and mathematics. And this, during a time when even chimpanzees have started understanding the concept of zero.
The article originally appeared on www.firstpost.com on August 25,2012. http://www.firstpost.com/business/chimpanzee-ai-knows-what-zero-means-but-does-chidambaram-430073.html
Vivek Kaul is a writer and can be reached at [email protected]
Month: August 2012
Why you shouldn’t write off the Tata Nano just yet
Vivek Kaul
A little over three years after it was first introduced Tata Nano is being widely touted as a flop. The car which was supposed to cause traffic jams all over India is not selling as much as it was expected to.
Between January and July this year 55,398 units of the car have been sold. This is 13.3% more than the number of units that were sold during the same period last year. So even though the numbers are looking better this year they are nowhere near the installed capacity that the Nano plant in Sanand in Gujarat has, as an earlier piece pointed out. (You can read the complete piece here).
Numbers of reasons are being pointed out for the Nano flop show. Let me discuss a few here. In the book The Little Black Book of Innovation Scott D Anthony, who is an innovation consultant, points out a conversation he had with a colleague in late 2009. ““Here’s a provocative perspective,” my colleague said in late 2009… “I think the Tata Nano is going to be a disappointment.”… So why was my colleague being so skeptical? “Look at it from a customer’s perspective,” he said. These people could already afford to pay twenty-five-hundred dollars (or around Rs 1 lakh as the Nano was expected to be priced initially) for a perfectly good used car. Instead they consciously chose the scooter.”
Ratan Tata had the idea to build a car like Nano when he saw a family of four struggling on a two-wheeler on a rainy night in Mumbai. But despite the safety hazards people still preferred a two wheeler to a Nano. “Why would consumers choose a scooter? It wasn’t that these people didn’t care about their family. Rather, they didn’t have the space to park a car, or they found scooters that fit into tiny gaps on India’ chaotic streets a much more convenient form of transformation,” writes Anthony.
Another major reason being pointed out for Nano’s failure is it’s positioning. As Rahul Shankar points out in a blog post titled “Why did the Tata Nano fail as a disruptive innovation?” “The Nano was essentially branded as the world’s cheapest car…The truth is that no one wants to own a car that is thought off as cheap. Very few people treat a car as just a machine that takes them from point A to point B. This is basically what the Nano has been reduced to. People want to brag about how awesome their car is and how it kicks their neighbor/friends car’s butt….The advertisements that I have seen for the Nano have unfortunately come off as bland and catering again to the theme of affordability.” (You can read the complete post here)
These are valid points that have been raised. Even Ratan Tata has admitted to mistakes having been made. “We never really got our act together…I don’t think we were adequately ready with an advertising campaign, a dealer network,” Tata remarked earlier this year.
But these reasons notwithstanding, it’s too early to write off the Nano. Nano is what innovation experts call a disruptive innovation. This term was coined by Harvard Business School professor Clayton Christensen. “A disruptive innovation is an innovation that transforms an existing market or creates a new one by introducing simplicity, convenience, accessibility and affordability,” is how Christensen defined disruptive innovation when I had interviewed him a few years back for the Daily News and Analysis (DNA).
An important thing with disruptive innovations is that they tend to work out over a period of time. As Christensen said “It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
A great example is the Apple personal computer which took around a decade to establish itself. As Christensen put it “A great example is the Apple personal computer. The incumbent companies of the time were those like Digital Equipment Corporation (DEC) that made minicomputers, which were big machines that sold for lots of money and could handle very complex tasks. When the personal computer burst on the scene, it sold for significantly less money than the minicomputer did…the PC wasn’t as good as the minicomputer for the market as it existed at that time. Apple made a wise decision and first sold the personal computer as a toy for children. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Given this any disruption does not come as an immediate shift. “Disruption rarely arrives as an abrupt shift in reality,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class —How Disruptive Innovation Will Change the Way the World Learns.
This is something that Nirmalya Kumar, a professor at the London Business School (LBS) agrees with. “What I know about is radical versus incremental innovation. The more radical the innovation is the longer the time customers take to adopt it. People think of Nesspresso as being as a great radical innovation, but what they don’t know is that for 20 years it did not sell a whole lot and then the sales went up in a spike,” Nirmalya Kumar had told me in an interview I did for the Economic Times. Nespresso is a cappuccino maker sold by Nestle.
Amazon, which started off as a bookseller is another great example of a disruptive innovation which took time to get settled in. Another great example from the field of cinema is the movie Sholay. The film was massacred by critics when it released on August 15,1975. As Anupama Chopra writes in Sholay: The Making of a Classic “Taking off on the title of the film, K.L.Almadi writing in the India Today called it a ‘dead ember’… Filmfare’s Bikram Singh wrote: ‘The major trouble with the film is the unsuccessful transplantation it attempts – grafting a western on the Indian milieu.”
The Indian audience had never seen anything like this before. And it thus took time to sink in. The film went onto become the biggest box office hit of all time.
What these examples tell us is that it is too early to write off the Nano, despite the fact that the initial planks on which it was sold are largely not true anymore. “A cheap car that’s not really cheap. A safe car whose safety has been questioned. A poor people’s car that poor people aren’t buying. That sounds like a failure, certainly. But really it’s not. It’s par for the course for almost every breakthrough innovation,” writes Matthew J. Eyring the president of Innosight, a strategy innovation consulting and investment firm, on the HBR blog network. (you can read the complete piece here). “In fact, I can think of only one example of a CEO who pre-announced an innovation that was going to change the world and actually delivered it. That’s Steve Jobs of course,” he adds.
Critics point out that a lot of assumptions that Nano’s initial strategy was built on are not turning out to be true. The two wheeler riders aren’t upgrading to the Nano as they were. It’s no longer as cheap as it was initially promised to be. And people are buying it more of as a second car rather than their main mode of transport. But this is again in line with the way breakthrough or disruptive innovations operate.
As Eyring puts it “There’s nothing unusual about a company having to adjust the price, the production process, the marketing, or even the market of a breakthrough offering. The Nano’s price changes, the new maintenance contract Tata is rolling out to assure buyers of quality, the test drives it’s introducing, the new smaller showrooms, and the new commercials — all widely discussed in the press — should not really be news.”
All these things are also happening with the Nano because Tata Motors went in for a full fledged launch of the car rather than a small one. As Nirmalya Kumar put it “When the product development is radical you always do a small launch. They did a huge launch for Nano. They should have done a smaller launch. With radical innovation you need to keep tinkering and figuring out what is it exactly that the customer wants. This is because with radical innovation pre market testing is not really relevant because the consumers are not good at telling you whether they will buy a radical new product because they have no conceptualisation.”
This is something that Godrej & Boyce did with the ChotuKool refrigeratior. “Long before most people had heard of the low-power fridge ChotuKool, Godrej & Boyce spent quite some time investigating people’s refrigeration needs, designing and redesigning the product, and redoing its distribution strategy, carefully, slowly, and quietly,” writes Eyring.
It would have helped if Tata Motors had followed a similar strategy with Nano. As Eyring points out “It might not have been easy, but had Tata piloted the Nano quietly, on a small scale, perhaps through a limited production run in a small city like Durgapur in West Bengal or Ranchi in Jharkand, its engineering, pricing, financing, and marketing might have been adjusted far from the limelight to suit the needs of an optimal target customer… the Nano might have made its debut to the wider world with less hype and greater effect. It might not have been a 1 lakh car or even an alternative to motorscooters. But when it first appeared in the mainstream, it would have been right product for the right price in the right market.”
So now the Nano has entered the tinkering phase. And as this goes along Tata Motors will figure out what works and what does not. And this may be totally different from the assumptions the company started out with.
What still doesn’t change is its low price, despite the fact that it never sold for Rs 1 lakh as it was initially expected to. As Nirmalya Kumar put it “That’s the real startling novelty of the product because there is no car available anywhere in the world for $5000.”
The article originally appeared on www.firstpost.com on August 24,2012. http://www.firstpost.com/business/why-you-shouldnt-write-off-the-tata-nano-just-yet-429044.html
(Vivek Kaul is a writer and can be reached at [email protected])
It’s back to Hindutva for Shiv Sena after 11 August
Vivek Kaul
The Tiger is roaring again. Posters of Shiv Sena supremo Bal Thackeray with the tagline Ekta Tiger- Garv Se Kaho Hum Hindu Hain have started to appear in Mumbai.
The aim it seems is to kill two birds with one stone. The Ekta Tiger part is to just remind Mumbai that the original tiger of the city is still around, the roar of Raj Thackeray notwithstanding. But it’s the second part which makes things more interesting.
Shiv Sena first took on the cause of Hindutva way back in 1984. As Vaibhav Purandare writes in The Sena Story “After having vacillated for some time…the Shiv Sena made a definite shift to Hindutva in 1984…Addressing a massive public rally at Shivaji Park on January 22, Bal Thackeray mooted the idea of confederation of Hindu organisations, the Hindu Mahasangh.”
Thackeray explained the three point programme of Hindutva. “First, Muslims should like Hindus, adhere to one-marriage rule and resort to family planning…Second, they should extend their support to the ban on cow slaughter. And third, they should accept this is a Hindu Rashtra,” points out Purandare. (The italics are of the author Purandare).
Soon after this the Shiv Sena joined hands with the Bhartiya Janta Party(BJP) for the Lok Sabha elections scheduled for December 1984. The late Pramod Mahajan was instrumental in getting this alliance going.
In an article that Mahajan wrote for the Sena mouthpiece Samna in 1998 he says (as quoted in The Sena Story): “I still remember the discussions I had with Balasaheb in our first few meetings. He had entered the arena by taking up the cause of Hindutva. Once, in the course of our conversation, I told him: the Hindu votes as a Maratha, as a Mali, as a Dalit, as a Marwari, and as a Brahman, but he never votes as a Hindu. How will our politics be successful? Without a moment’s hesitation he replied: ‘Pramod, when I started the Shiv Sena, people said the same thing – that the Marathi manoos doesn’t vote as a Marathi. But I proved this assumption wrong. You’ll see that I will make Hindus vote as a Hindus. I was overpowered with emotion at this answer, but I hesitated to believe what he said. Now when I look behind, I see that he proved his word in just five years.” (The italics are of the author Purandare).
So from this one can easily conclude that Hindutva as a political strategy which the BJP so successfully employed in the years to come was really the brainchild of Bal Thackeray.
Over the years Hindutva helped the Sena spread itself much beyond Mumbai and its suburbs and helped attract people from other parts of Maharasthra. As Purandare writes “The Sena set up its forts in villages in extravagant style, Sainiks bathed head-to-toe in saffron clothes and bandannas splashing gulal all over the place and shouting slogans of Jai Bhavani, Jai Shivaji, to the blowing of conch-shells and the accompaniment of leathern-drums, kettle drums and other musical instruments…The rapid rollout of the saffron carpet slowly induced significant numbers of rural youngsters to move forward and attach themselves to the Sena fold.”
While taking up the cause of the Marathi manoos helped the Sena firmly establish itself in Mumbai. It was Hindutva that helped it increase its presence across other parts of Maharashtra. In a way it was also responsible for the BJP taking Hindutva from Maharasthra to other parts of the country. Brand BJP was built on the war cry of “saugandh Ram ki khaate hain, mandir wohin banayenge”. This ensured that the party was able to increase the number of seats in the Lok Sabha from two in 1984 to 88 in 1989 and 118 in 1991.
In the last few years the Shiv Sena has put Hindutva on the backburner as it has tried to widen its appeal and support base. As columnist Sujata Anandan wrote in the Hindustan Times in October 2010, “There was a time when they (the Muslims) were willing to experiment with the Shiv Sena in the wake of their disappointment with the Congress”. (you can read the complete column here).
But with Raj Thackeray trying to hijack Shiv Senas Hindutva cause with his latest rally at the Azad Maidan in Mumbai, Shiv Sena has had to get back to the basics. While Raj Thackeray did not associate with the Hindutva cause anywhere directly in his speech, but there are enough reasons to suggest that Thackeray junior is trying to broaden his appeal and go beyond just the Marathi manoos stand that the Maharashtra Navnirman Sena currently stands for.
“In 1992 when the Babri Masjid was demolished, where was its retaliation felt instantly? In Mumbai! There was no violence anywhere else in the country…only in Mumbai!” Raj Thackeray said in his speech. (You can read the complete translation of the speech by Gaurav Sabnis here).
Every political party is a brand and a brand needs to stand for something. It needs a story that can be told to people, so that people can go buy the brand by supporting it and by voting for it. Shiv Sena’s success has been built on the planks of Hindutva and taking up the cause of the Marathi manoos. That is what the brand Shiv Sena stands for.
When political parties try to fiddle with what their brand stands for they pay for it dearly. The BJP decided to abandon its soft-Hindutva branding and go in for what it thought was a more mass market campaign of “India shining” in the 2004 Lok Sabha elections. The party lost the elections and has been in opposition ever since.
More recently Buddhadeb Bhattacharya tried to project a pro industry and business image of his communist government, for the 10 years he was the chief minister of West Bengal. The left parties lost the 2011 state assembly elections in West Bengal badly.
In a sense, political parties trying to change what they stand for are like the Fair and Lovely fairness cream. The skin lightening cream as it is technically referred to as was first launched in India in 1978. The advertising strategy for Fair and Lovely has always been something akin to “kaale ko gora bana de“.
In fact in 2007, a Fair and Lovely advertisement, which showed a dark-skinned women, who was having a tough time finding a job and a boyfriend and was shown to be a complete loser, suddenly became the talk of the town after she started using Fair and Lovely fairness cream and became fair.
The criticism caused Fair and Lovely to change the “kaale ko gora bana de” positioning to try and show those who use Fair and Lovely are achievers in their real life. The next advertisement to hit the market showed a girl achieving her dreams of becoming a cricket commentator and finally meeting Kris Srikanth.
The association of the original story of “kaale ko gora bana de” with the Fair and Lovely brand was strong that it had to go back to it with the claim that the cream made women several shades lighter in four to six weeks. In that sense Shiv Sena like Fair and Lovely is going back to the story which has been closely associated with it. And that cannot be bad for it as a political party.
On a separate note it does make the politics in this country more divisive and communal. Having said that almost every regional party in India has had its origins in divisive politics. And they continue to survive on the same. Be it Bahujan Samaj Party in Uttar Pradesh or the Dravida Munnettra Kazhagam(DMK) in Tamil Nadu.
Shiv Sena is getting back to doing what everyone else is.It is clearly not an exception.
The article originally appeared on www.firstpost.com on August 21,2012. http://www.firstpost.com/politics/its-back-to-hindutva-for-shiv-sena-after-11-august-426230.html
Vivek Kaul is a writer and can be reached at [email protected]
Dear Beni Prasad, it’s govt, not farmer, who benefits from inflation
Vivek Kaul
“Beni Prasad Verma is not a particularly bright fellow,” said Mohan Guruswamy, Chairman of Centre for Policy Alternatives, a New Delhi based think tank, on Times Now late last night.
The remark was in reference to Beni Prasad Verma’s comment that “dal (pulses), aatta (flour), rice and vegetables have become expensive. The more the prices, the better it is for farmers. I am happy with this inflation…Media says the cost of food has increased, but it is benefiting farmers… and the government is in favour of farmers’ profit.” Verma is the union minister of steel.
There are several logical inconsistencies in what Verma said during the course of the day yesterday. An increase in price and the farmer benefitting from it are two very different things. As we know the farmer does not sell his produce directly to the consumers. His produce goes through a series of middlemen. That being the case it’s the middlemen who buy agriculture produce from the farmers, who might be gaining the most from a rise in price. And not the farmer. This has been the case in the past whenever India has seen a shortage of onions.
But what if the farmer is benefitting from the rise in price? This means that the farmer is actually able to sell his produce at a higher price. Even then Verma’s statement does not make sense.
It does not take into account the fact that a normal farmer does not produce all the goods he consumes. So a rice farmer may not be farming vegetables. And a vegetable farmer may not be producing dal and so on. Hence, a rice farmer might gain when the government announces a higher minimum support price for rice, but he loses out because he also needs to buy dal, vegetables, sugar and so on. And the prices of these food products have also been going up.
The latest inflation number based on the consumer price index was released today. The inflation for the month of July 2012 came in at 9.86%. This means that prices on the whole were up by 9.86% in the month of July 2012 in comparison to July 2011.
The inflation for July 2012 was marginally down from the inflation of 9.93% experienced in the month of June, 2012. Within this the food price inflation stood at 11.53%. The number was at 10.71% in June, 2012.
The point I am trying to make is that farmers other than growing what others eat, also eat what other farmers grow. This is a basic fact that Beni Prasad Verma did not realize while making the statement that he did. And if food prices on a whole went up by 11.53% in July 2012, it surely does not benefit farmers because other than being producers of food products, they are its consumers as well.
Now that’s one part of the argument.
A high inflation also hurts consumers at all levels, which includes farmers. They cut down on their planned spending as prices rise and this in turns hurts businesses and the overall economy. Businesses do not like to spend money on newer projects as consumers cut down on consumption.
So the question is who benefits in an environment when the inflation is high? “The most obvious beneficiary of higher inflation, at least in the short term, is the government. Since…the government will always be able to pay its debt, at least domestically since higher inflation effectively reduces the long-term cost of borrowing money,” writes Kyle Bumpus in an article titled Who Benefits From Inflation? (you can read the whole article here)
Let’s take a look at this statement in the context of India. The return on a ten year government bond as I write this is around 8.22%. The government essentially issues bonds to finance its fiscal deficit or the difference between what it earns and what it spends.
The consumer price inflation for the month of July 2012 has come in at 9.86%. What does this mean? This means that the government can effectively raise money from the market at the rate of 8.22% when inflation is at 9.86%. This effectively means that the real rate of interest is negative (the nominal rate of interest i.e. 8.22% minus the inflation i.e. 9.86%).
Hence the interest that the government offers on its bonds is even lower than the rate of inflation. So technically investors who are buying government bonds are effectively losing money, given that the interest they get paid is lower than the rate of inflation.
The question is why are investors then ready to buy government bonds which pay an interest lower than the prevailing rate of inflation? “So negative real rates may simply indicate that savers are incredibly cautious, and that businesses are reluctant to invest in new projects,” wrote The Economist in a recent edition. “When an economy is growing rapidly, there should be an abundance of profitable investment opportunities. Businesses are happy to borrow at high real rates, confident that they can still earn an even higher return,” it added.
But given the state of the economy right now the businesses and savers would rather buy government bonds and lose a little money on it, rather than invest it anywhere else. This demand for government bonds, allows the government to pay a rate of interest which is lower than the prevailing rate of inflation. In the strictest sense of the term the government gets paid to borrow. Hence, it benefits from inflation.
And not the farmer. This is something that Beni Prasad Verma either does not understand or is simply catering to vote bank politics with the assumption that higher food prices benefit farmers. Its time he heard the only Hindi film song written on inflation from the movie Roti, Kapda Aur Makan, written by Verma Malik, “Baakee Kuch Bacha Toh Mehangayi Maar Gayi”.
The article originally appeared on www.firstpost.com on August 21,2012. http://www.firstpost.com/economy/dear-beni-prasad-its-govt-nor-farmer-who-benefits-from-inflation-424931.html
(Vivek Kaul is a writer and can be reached at [email protected])
Lessons from Ek Tha Tiger even if you aren’t a Salman fan
Vivek Kaul
I haven’t seen a Salman Khan movie in a cinema hall in more than 17 years now. The last time was when I saw Hum Aapke Hain Koun for the twelfth and the last time, at the Sujata cinema in Ranchi, sometime in February 1995. The movie was running in its record twenty seventh week. And as many of you would agree Hum Aapke Hain Koun was more of a Madhuri Dixit movie than a Salman Khan one.
Those were days when movies ran for prolonged periods and the 3200 print release that Salman Khan’s most recent release Ek Tha Tiger had, were unheard of. Money was made over a period of time and not in the first three-four days of release.
Given that, if the people did not like the movie over the first three four days of its release the chances of the movie doing well were rather low. Unlike these days when the marketing blitzkrieg that accompanies a big release is so huge that most people are tempted to watch the movie over the first weekend of its release, and before they realize that they have ended up watching a lousy movie, the producer has made his money. What nobody really tells you is that how much money all these superhit movies make on the “fifth” day after their release?
This strategy also requires a large number of prints of the movie being released to ensure that everyone and anyone who wants to see the movie gets to watch it. Hence the days when house-full boards were put up in front of cinema-halls are long gone.
Getting back to where we started. Salman Khan has attained a superstar status in Hindi cinema over the last few years. His movies have constantly done a business of over Rs 100 crore. Movies like Wanted, Ready and Bodyguard which were remakes of hit movies from down south, were superhits in Hindi as well.
But the movies of Salman Khan have never found favour with serious film critics (leaving out the ones who run film trade journals and have other incentives at work ).
So I was rather surprised when Salman’s latest release Ek Tha Tiger got reasonably good reviews in most of the mainstream media. This got me interested and I decided to break my rule of not spending money on a Salman Khan movie and go check out the movie at the nearest multiplex.
Half way through Ek Tha Tiger I had a throbbing headache. It was similar to the one I had got when I was forced to watch Ready (or was it Bodyguard?) on television with a young cousin. The movie does have a few things going for it. The foreign locales in ETT (as diehard fans of Salman like to call it) are new. Indian cinema goers have never seen movies shot in Turkey, Cuba and Ireland, before this. Also Katrina Kaif has acted better than the dumb blonde she portrays well in most of her other movies. The supporting cast has acted well.
But on the whole the movie is a little better than the mindless crap offered by Salman’s earlier releases like Ready, Bodyguard, Wanted etc. So the question is why had so many film reviewers gone around giving it the kind of good reviews that they had?
They had become victims of what behavioural economists call the ‘contrast effect’. We all tend to compare things before making a decision. Given this, the attraction of an option can be increased significantly by comparing it to a similar, but worse alternative. This is known as the ‘contrast effect’.
Let’s understand this through an example. Real estate agents who help put out homes on rent, use the contrast effect very well. The way it has worked with me whenever I have tried to look for a rented accommodation is somewhat like this.
The agent first takes me around and shows me a couple of apartments which are not in the best of condition. While coming out of these places, seeing my displeasure, the agent typically says that the apartment I showed you wasn’t really great.
“So why did you show it to me?” I normally question him, after we are out of the apartment. In such cases I get stock replies like, “Oh this place came to me only today morning. I hadn’t checked it out before, I wouldn’t have shown it to you otherwise,” or “I am just trying to figure out what kind of place you really want.”
This is where part-one of the act ends. Then the agent shows a place which is slightly better than the few run down places he had shown to me a little earlier. But the difference is that the rent in this case is significantly higher.
This is the “contrast effect” at work. The attractiveness of the apartment shown later is increased significantly by showing a few “run down” apartments earlier. The critics who reviewed Ek Tha Tiger had fallen victims to the same “contrast effect”. They had found the earlier movies of Salman Khan so lousy that in comparison a slightly better Ek Tha Tiger was felt to be much better.
The contrast effect has been put to great use by retailers as well to increase the attractiveness of certain products. A 1992 research paper written by Itamar Simonson and Amos Tversky, shows this through an example of a retailer who was selling a bread making machine. The machine was priced at $275. In the days to come the company also started selling a similar but larger bread making machine. The sales of this new machine were very low. But a very interesting thing happened. The sales of the $275 machine more or less doubled. As an article on the website of the Harvard Law School points out “Apparently, the $275 model didn’t seem like a bargain until it was sitting next to the $429 model.” (you can read the complete article here)
This is a trick used by retailers all over the world to great effect. By displaying two largely similar but differently priced products, the sales of the product with the lower price can be increased significantly by making it look like a bargain.
The contrast effect can also be put to use while making financial negotiations, like in the case of a job offer. In this case it makes sense to start with asking for more than you expect realistically. “The contrast effect suggests a strategic move: ask for more than you realistically expect, accept rejection, and then shade your offer downward. Your counterpart in the financial negotiations is likely to find a reasonable offer even more appealing after rejecting an offer that’s out of the question,” points the Havard Law School article points out.
Another area where contrast effect is used to great effect is while selling a fraudulent financial scheme which is basically a Ponzi scheme. In 1919, Charles Ponzi, an Italian immigrant to the United States of America (US), promised to double the money of investors who invested in his scheme in 90 days.
The news spread quickly. Money started pouring in as no other investments in the market at that point of time, promised such high returns, in such a short span of time. At its peak, the scheme had 40,000 investors who had invested around $ 15 million in the scheme. Meanwhile, Ponzi had started living an extravagant life blowing up the money investors brought in.
On Aug 10th, 1920, the scheme collapsed. The auditors, the newspapers and the banks declared that Ponzi was definitely bankrupt. It was revealed that money brought in by the new investors was used to pay off old investors. Thus an illusion of a successful investment scheme was created.
Charles Ponzi was not the last guy to run a fraudulent Ponzi scheme. Such Ponzi schemes have continued since then and keep cropping up all the time.
The contrast effect is at play when investors decide to invest in a Ponzi scheme. It becomes relevant in the context of a Ponzi Scheme when the prospective investor starts comparing the returns on the various schemes available in the market for investment at that point of time to the returns being promised by the Ponzi scheme. The high returns of the Ponzi Scheme stand out clearly and attract gullible investors.
So film reviewers are not the only “victims” of the contrast effect. It is at work in various facets of our “financial” lives as well. There was another big learning for me from the Ek Tha Tiger experiment. The next time I convince myself to watch a Salman Khan movie at a multiplex the least I could do is watch the morning show and not waste much money in the process.
The article originally appeared on www.firstpost.com on August 20,2012. http://www.firstpost.com/bollywood/lessons-from-ek-tha-tiger-even-if-you-arent-a-salman-fan-423669.html
(Vivek Kaul is a writer and can be reached at [email protected]. He is not a Shahrukh Khan fan)