What is the right price of anything?

rupee Vivek Kaul  
A few years back when I went to get a new pair of spectacles made, I was given an estimate of Rs 5,700. “Chashma khareedna hai, dukan nahi (I want to buy a pair of spectacles, not the shop),” I quipped immediately.
The shopkeeper heard this and quickly moved into damage control mode. He showed me a new frame and we finally agreed on a price of Rs 2,700. The frame I ended up buying was not very different from the one that I had originally chosen. The shopkeeper tried to tell me that the earlier one was more sturdy, easy on the eyes, etc.
But to me both the frames looked the same. I have thought about this incident a few times since it happened, and come to the conclusion, that the shopkeeper was essentially trying to figure out the upper end of what I was ready to pay. In the end he sold me more or less the same product for Rs 2,700 even though he had started at Rs 5,700. He was playing mind games.
Was he successful at it? Prima facie it might seem that I saved Rs 3,000. (Rs 5,700 minus Rs 2,700). But is that the case? One of the selling tricks involves making the customer feel that he has got a good deal. Barry Schwartz provides a excellent example of this phenomenon in his book The Paradox of Choice: Why More is Less.
He gives the example of a high-end catalog seller who largely sold kitchen equipment. The seller offered an automatic bread maker for $279. “Sometime later, the catalog seller began to offer a large capacity, deluxe version for $429. They didn’t sell too many of these expensive bread makers, but sales of the less expensive one almost doubled! With the expensive bread maker serving as anchor, the $279 machine had become a bargain,” writes Scwartz.
Now compare this situation to what I went through. Before you do that, let me give you one more piece of information. When I went to the shop looking to buy a pair of spectacles, I had thought that I won’t spent more than Rs 2,000 on it. But I ended up spending Rs 2,700.
The shopkeeper’s first prize of Rs 5,700 gamed me into thinking that I was getting a good price. Thus, I ended up spending Rs 700 more than what I had initially thought. Behavioural economists refer to this as the “anchoring effect”. As John Allen Paulos writes in A Mathematician Plays the Stock Market “Most of us suffer from a common psychological failing. We credit and easily become attached to any number we hear. This tendency is called “anchoring effect”.”
Marketers use “anchoring” very well to make people buy things that they normally won’t. As Schwartz points out “When we see outdoor gas grills on the market for $8,000, it seems quite reasonable to buy one for $1,200. When a wristwatch that is no more accurate than one you can buy for $50 sells for $20,000, it seems reasonable to buy one for $2,000. Even if companies sell almost none of their highest-priced models, they can reap enormous benefits from producing such models because they help induce people to buy cheaper ( but still extremely expensive) ones.”
Anchoring is used by insurance agents as well to get prospective customers to pay higher premiums than they normally would. As Gary Belsky and Thomas Gilovich write in Why Smart People Make Big Money Mistakes and How to Correct Them “If you’re on the “buy side” purchasing life insurance, for example you’ll be susceptible to any suggestions about normal levels of coverage and premiums. All that an enterprising agent need to tell you is that most of people at your age have, say, $2 million worth of coverage, which needs $4,000 a year and that will likely become your starting point of negotiations.”
Hence, it is important for consumers seeking a good deal to keep this in mind, whenever they are thinking of buying something.
The column originally appeared in the Mutual Fund Insight magazine, March 2014 

(Vivek Kaul is the author of Easy Money. He can be reached at [email protected]

“India should focus on branding its software business”

al ries 2Vivek Kaul  
Al Ries first rose to fame in 1972 when he wrote a series of three articles on a new concept called “Positioning” along with Jack Trout. In 1981, the Positioning book was published and has since sold well over 1 million copies. The book has sold over 400,000 copies in China alone. The two authors also wrote Marketing WarfareBottom-Up MarketingHorse Sense and The 22 Immutable Laws of Marketing.
Al is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter, Laura Ries. Along with Laura he has written bestsellers like War in the Boardroom and The Origin of Branding. In this interview he speaks to FirstBiz on how countries can go about branding themselves. 

Can countries be branded like products?
It depends on the size of the country. The bigger the country, the harder it is to brand. The smaller the country, the easier. Brand USA, a partnership between the travel industry and the U.S. government, is planning a $200-million campaign to attract tourists to America. The theme: “United States of Awesome Possibilities.” That’s a ridiculous idea.
On the other hand, take a small country like Kenya. What is Kenya’s major tourist attraction? Wild animals from lions to elephants to giraffes. So how would I brand Kenya? “The world’s largest zoo.”
How is branding a country different from branding a product?
It’s essentially the same as branding a product. So how to you brand a product?
Narrow the focus. BMW narrowed its focus to “driving” and became the world’s largest-selling luxury-vehicle brand, ahead of Mercedes, Audi, Lexus, Cadillac and Lincoln.
What makes Singapore different from every other country in the world? Housing. 80 percent of the residents of the country live in apartments, not houses. As the world’s population continues to increase, more and more people are going to have to live in high-rise apartment buildings. Here’s how I would brand Singapore: “City of the Future.”
Can you give us examples of countries which have branded themselves well?
I know of only two, both small countries. Guatemala, a country in Central America, is branding itself as “The heart of Maya country.” An ancient civilization, the Maya have left hundreds of imposing temples scattered throughout Central America. But the country that has the most temples and other historic sites is Guatemala. (I once suggested the country change its name to Guatemaya). The other is Grenada, a country in the Caribbean sea, which is branding itself as “The Caribbean the way it used to be.” In other words, without all the fancy high-rise hotels for tourists.
How can a country go about branding itself?
The basic principle is to narrow the focus. But that’s extremely difficult for a large country. That’s why a large country should forget about branding the country. It should brand its major city instead. Instead of branding America, we should brand New York City, the one city most tourists to America want to visit.
Turkey is a large country that is trying to brand itself with a silly slogan, “Turkey is ready.” A better direction is to brand Istanbul as the best place in the business world for a global headquarters.
Could you elaborate on that?

Consider a company with representatives in the major cities on six continents: Johannesburg, London, Mumbai, New York, Sao Paulo, Shanghai and Sydney. Now where should a company like this one hold it corporate meetings? Istanbul.
Here are combined mileage statistics for a single representative from each city attending a potential global meeting held in these major cities.
Sydney . . . . . . . . 58,784 miles
Johannesburg . . . 58,676 miles
Sao Paulo . . . . . . 50,846 miles
Mumbai . . . . . . . 49,450 miles
New York . . . . . 46,342 miles
Shanghai . . . . . . 44,925 miles
London . . . . . . . 42,472 miles
Istanbul . . . . . . . 40,411 miles
And it’s not just location that gives Istanbul an advantage. Companies like to hold meeting in “neutral” locations, so that local representatives don’t dominate the meetings. Istanbul is not a European city. Istanbul is not an Asian city. Istanbul is a cosmopolitan city with roots in both continents.
And how would you brand Istanbul?
Crossroads of the world.” Sometimes it’s a good idea to compare yourself with another country or another location. Jamaica is a small country in the Caribbean, but it has mountains and waterfalls similar to Hawaii in the Pacific Ocean which is a major tourist attraction for Americans. Here is how we would brand Jamaica: “The Hawaii of the Caribbean.”
Most people think New Zealand is a country. But it’s also an island. Actually, it’s two islands. The North island and the South island. Here is the slogan we developed to brand New Zealand: “The two most-beautiful islands in the world.”
Any other examples?
Colombia is a country in South America that has had a lot of civil wars. But Bogota, the capital, sits on the natural trade route from North America to South America and would make an ideal location for foreign companies to establish their South American headquarters. Furthermore, Bogota sits on top of the equator, but at 8,000 feet above sea level. As a result, warehouses need no air conditioning and no heating all year long. Our proposed branding slogan: “Air conditioned by God.”
Would you suggest that when the reputation of a country is clear and positive, products that are made in that country carry an extra credibility?
Every country has a “natural” position established by decades or centuries of publicity.

Germany is “engineering.”
France is “wine.”
Italy is “fashion.”
Switzerland is “watches.”

Japan is “automobiles.”
America is “computers.”
India is “tea.”
So when you brand a product, it can be helpful to relate your product brand to the country’s position. For example, I met once with the CEO of a Swiss company developing a new automobile brand. Does an automobile from Switzerland make any sense, he asked me? Sure, I said and I have a headline for your first ad: “Runs like a watch.” 
What does India need to do to brand itself well? What sort of Indian products will it help sell? The first decision to make is, Do we want to build a brand to attract tourists or to attract business? You can’t do both. Potentially, India can have a great tourist business, but the current visa situation is seriously undermining that possibility. So I would suggest India focus on business, rather than tourists.
What type of business should India focus on?
Darjeeling tea is one possibility. But it would take forever to broaden the territory covered by the Darjeeling “tea gardens.” A better possibility is “computer software.”
India has three advantages in software. First of all, India turns out more college graduates than any other country in the world. Second, computer software today is primarily developed in the English language which put countries like China at a serious disadvantage. Third, wage levels in India are lower than in most developed countries.
Then, too, opportunities are opening up in software because the market is fragmenting. Microsoft is not nearly as dominant as it once was. Also, the raft of new electronic products (smartphones, tablet computers and many more to come) will continue to generate strong demand for software.
How can a strong country brand help companies and brands originating from that country ?  Many brands take advantage of this idea by including the name of their country or city in their logotypes. Paris is known for cosmetics and L’Oréal is a leading French cosmetics company. The company’s logotype says: L’Oréal Paris. And the Lancȏme logo also includes the name “Paris.”
In one of the columns that I read on country branding it was suggested “ Brands across the board from particular countries can command higher prices than those from other countries, simply by virtue of the strength of the country’s brand.” Do you believe in that? Could you give us examples on the same?
The best example is Switzerland which has a monopoly on expensive watches. A quartz watch made in Japan and sold in America for $500 or so will keep better time than a mechanical watch like Rolex that sells for $5,000 or $10,000.
So why do people pay thousands of dollars for a mechanical watch? Because it’s a Rolex from Switzerland. The same is true for wine from France. Fashion from Italy. Spain is the world’s largest producer of olive oil. But Spain doesn’t have the same reputation for olive oil as Italy. So much of Spain’s olive oil is shipped to Italy and then sold on the world market as “Olive oil from Italy.”
The interview originally appeared on www.FirstBiz.com on March 7, 2014
(Vivek Kaul is a writer. He tweets @kaul_vivek) 
 

Google Plus versus Facebook: How a big brand can win even without the best product

facebook-logoVivek Kaul  
Google+ was launched sometime in 2011. It got rave reviews and many technology enthusiasts claimed that it was much better than Facebook and advised users to switch. More than two years later Facebook continues to be the leader and Google+ is at best an also ran.
The moral of the story is that a better product doesn’t always win in the market place. And there are various reasons for the same. In case of Google Plus versus Facebook it was a clear case of the network effect.
As Niraj Dawar writes in 
Tilt – Shifting Your Strategy from Products to Customers “For those who want to be a part of a social network, it makes sense to congregate where everybody else is hanging out. There is only one village square on the Internet, and it is run by Facebook. Being on a different square from everyone else doesn’t get you anywhere—you just miss the party.”
This was the main reason why people did not move from Facebook to Google+, even though it may have been the better product. “Google + may offer features such as greater privacy or group video chat,” writes Dawar, but it fails to “create the positive feedback loop, because it makes sense for everybody to be where everybody else already is.”
Hence, people stayed on Facebook because everyone else was on it as well. So, even though most people may have the mandatory Google+ account, but ask them where they spend a good amount of their social networking time, and the answer you will get is Facebook.
An excellent example of the network effect being the main reason for the success of a product is the WhatsApp messenger. Despite the fact that there are other players in the market which are advertising very heavily, WhatsApp continues to hold its ground.
Another area where the network effect plays out these days are the movies. “With social networks’ rapid dissemination of information, these types of brand network effects have been turbocharged—they occur more rapidly and forcefully than ever before. A movie now flops or hits as a result of the first forty-eight hours of tweeting and box office sales,” writes Dawar. The holiday season and long weekends are littered with examples of several bad movies, which people watched because everyone else had.
At times what also happens is that the criteria for success that the company had backed on, turns out to be different from what consumers think it should be. Take the case of the VHS versus Betamax battle for the video standard, between Sony and Matsushita, both Japanese companies. Sony decided to concentrate on video quality whereas Matsushita decided to concentrate on longer recording time, which ultimately became the key differentiator between the two standards.
By concentrating on the quality of the video Sony was just doing what it had done in the past. But consumers, it turned out, were looking for a longer recording time and were willing to compromise on the quality of the video.
At times, the consumers don’t have a role to play and have to go with what is offered. Take the case of the battle between Blu-ray and HD-DVD, two competing DVD formats. As Karl Stark and Bill Stewart write in an article titled 
Why Better Products Don’t Always Winon Inc.com “Unfortunately differentiating factors aren’t always clear, and consumers don’t always get the right to choose. Consider the battle between Blu-ray and HD-DVD; while consumers could buy either product, ultimately the war was fought over which content providers would exclusively back each format. Since more content was available on Blu-ray, it ended up creating more customer value, despite the possibility that HD-DVD was a technically superior product.”
Once the consumer is on the Blu-ray format, there is a huge cost of switching to HD-DVD, even though HD-DVD may catch up in terms of content that is available on it to be viewed.
On occasions what also happens is that the brand association of a particular product being the best product in that category is very strong and competitors can’t break it. Take the case of Gillette. As Dawar writes “After more than a century of blade technology, Gillette still controls when the market moves onto the next generation of razor and blade. And even though for the past three decades, competitors have known that the next-generation blade from Gillette will carry one additional cutting edge and some added swivel or vibration, they’ve never pre-empted the third, fourth, or fifth blade.”
Why is that the case? “Because there is little to gain from preemption. Gillette owns the customers’ criterion, and the additional blade becomes credible and viable only when Gillette decides to introduce it, backed by a billion-dollar launch campaigns.”
The chip maker Intel is in a similar sort of situation. Consumers believe that the chip is the fastest chip in the market, only if it comes from Intel. “Both AMD’s K-6 chip and the PowerPC chip were faster than the fastest Intel chip on the market at the time of their launch. But the two challengers were unable to move the market,” writes Dawar.
To conclude, let me quote Stark and Stewart: “Better products win when the total value – that is, the benefits minus the cost – is clear and measurable to the customer and creates more value than comparable offerings.” The trouble is it is difficult to figure out in advance what creates more value for the customer. Even the customer may not know the answer to that question.
The article originally appeared on www.FirstBiz.com on February 25, 2014 

 (Vivek Kaul is a writer. He tweets @kaul_vivek) 

Shopping lesson from Calvin and Hobbes: So much selection, and so little choice

Calvin---Hobbes-calvin--26-hobbes-254155_1024_768Vivek Kaul  
A few months back I stopped going to the local supermarket. There were two reasons for the same. The first reason was the fact that finding a cab that would drop me home, proved to be a tad difficult on occasions in the evenings. Like the autowallahs of Delhi, the taxiwallahs of Mumbai are also a little finicky, when it comes to small distances (though I must add that this happens only in the evenings in Mumbai, unlike Delhi, where it is a perpetual phenomenon). Given this, I had to walk home on occasions, carrying the stuff that I had bought. And that was not very pleasant.
The second reason was the fact that the amount of choice overwhelmed me. It left me confused on what to buy and what not to buy. Even buying something as simple as biscuits could involve a few minutes of decision making. I figured out that calling up my local 
banya and getting stuff home delivered was easier.
In fact the situation reminded me of a Calvin and Hobbes comic strip that I had read a while back. And this is how the rant from the comic strip goes:
Look at this peanut butter! There must be three sizes of five brands of four consistencies! Who demands this much choice? I know! I’ll quit my job and devote my life to choosing peanut butter! Is “chunky” chunky enough or do I need EXTRA chunky? I’ll compare ingredients! I’ll compare brands! I’ll compare sizes and prices! Maybe I’ll drive around and see what other stores have! So much selection, and so little time.
But this set me thinking on whether I was the only one having problems with more choice or was there something more to it? At a basic level we call love more choice, there is no doubt about that. As Sheena Iyengar writes in 
The Art of Choosing “Whatever our reservations about choice, we have continued to demand more of it.”
But is more choice helpful? “An abundance of choice doesn’t always benefit us…The expansion of choice has become the explosion of choice, and while there is something beautiful and immensely satisfying about having all this variety at our fingertips, we also find ourselves beset by it,” writes Iyengar.
She says this on the basis of a very interesting experiment on jams, she carried out with Mark R. Lepper . This study was finally published under the title 
When Choice is Demotivating: Can One Desire Too Much of a Good Thing?
Barry Schwartz summarises this experiment in The Paradox of Choice: Why More is Less, very well. As he writes “Researchers set up a display featuring a line of exotic, high-quality jams, customers who came by could taste samples, and they were given a coupon for a dollar off if they bought a jar. In one condition of the study, 6 varieties of the jam were available for tasting. In another 24 varieties were available. In either case, the entire set of 24 varieties was available for purchase.”
The results were surprising and conclusively proved that choice beyond a point essentially ends up confusing people, rather than making their lives easy, which should be the case. As Schwartz points out “The large array of jams attracted more people to the table rather than the small array, though in both cases people tasted about the same number of jams on average. When it came to buying, however, a huge difference became evident. Thirty percent of the people exposed to the small array of jams actually bought a jar; only 3 percent of those exposed to the large array of jams did so.”
As Iyengar and Lepper conclude in their research paper “. Thus, consumers initially exposed to limited choices proved considerably more likely to purchase the product than consumers who had initially encountered a much larger set of options.”
The logical question to ask is why is that the case? “A large array of options may discourage consumers because it forces an increase in the effort that goes into making a decision. Or if they do, the effort that the decision requires detracts from the enjoyment derived from the results,” writes Scwartz.
In fact, less choice is more beneficial for companies as well. As Iyengar and Lepper point out in their study “Several major manufacturers of a variety of consumer products have have been streamlining the number of options they provide customers. Proctor & Gamble, for example, reduced the number of versions of its popular Head and Shoulders shampoo from 26 to 15, and they, in turn, experienced a 10% increase in sales.”
This does not mean that choice should be done away with completely. The lesson here is that beyond a point choice confuses rather than helping people. When people are given a limited choice they are more likely to make a choice. As Iyengar writes in 
The Art of Choosing “Since the publication of the jam study, I and other researchers have conducted more experiments on the effects of assortment size. These studies, many of which were designed to replicate real-world choosing contexts, have found fairly consistently that when people are given a moderate number of options (4 to 6) rather than a large number (20 to 30), they are more likely to make a choice, are more confident in their decisions, and are happier with what they choose.”
Interestingly, the rise of the internet was helped to make choosing easier. But it hasn’t. It has introduced one more level of choice. As Schwartz explains “The Internet can give us information that is absolutely up-to-the-minute, but as a resource, it is democratic to a fault—everyone with a computer and an Internet hookup can express their opinion, whether they know anything or not. The avalanche of electronic information we now face is such that in order to solve the problem of choosing from among 200 brands of cereal or 5000 mutual funds, we must first solve the problem of choosing from 10,000 websites offering to make us informed consumers.”
The article originally appeared on www.FirstBiz.com on February 12, 2014

 (Vivek Kaul is a writer. He tweets @kaul_vivek)  

IPL is a great example of why big brands die hard

Indian-Premier-League-IPL-logoVivek Kaul
The Indian Premier League (IPL), the world’s biggest T20 cricket tournament, has been surrounded by controversies for a while. The latest round started yesterday with a panel appointed by the Supreme Court indicting Gurunath Meiyappan for spot fixing. Meiyappan is the son-in-law of the BCCI president N Srinivasan. Srinivasan also owns the IPL Team, Chennai Super Kings (CSK). He is also scheduled to takeover as the first chairman of the International Cricket Council (ICC) from July 2014.
This is not the first time that controversy has hit the IPL. In the past, there have been issues about the shenanigans of Lalit Modi, and how he started and ran the tournament. There have been issues about the union minister Shashi Tharoor using his late wife Sunanda Pushkar to pick up “sweat equity” in the now defunct IPL team Kochi Tuskers Kerala. Then there have also been issues about spot fixing, leading to the arrest of S Sreesanth, Ajit Chandila and Ankeet Chavan
who played for the Rajasthan Royals cricket team.
But despite these controversies, the brand IPL has held strong and advertisers have thronged to it, year on year. Interestingly, the research firm American Appraisal, in a report titled 
Clearing the Fence with Brand Value: A Concise Report on Brand Values in the Indian Premier League found that “43 percent of the respondents thought that the controversies surrounding the tournament impacted their new or continued relation with the IPL as sponsors or advertisers.” But more interestingly, “almost half said that the controversies in no way influenced their decision to affiliate with the tournament.” American Appraisal reached out to over 300 companies and ad agencies that are involved with the IPL. 
So what is it that makes brand IPL so strong despite all the controversies that have surrounded it? India is a cricket mad nation and for any company which has a consumer oriented focus, some money to spend and a lazy marketing strategy, it makes sense to be associated with the IPL brand. But that as they say is a no brainer.
The more important question to ask here is why have the companies continued to be associated with the IPL, despite all the controversies surrounding the tournament. Niraj Dawar possibly has an answer in his book Tilt- Shifting Your Strategy from Products to Customers. As he writes “Brands die hard…One consequence of the strong association of a brand with a criterion of purchase is that even when the brand falls behind technologically or fails to deliver on the product, it continues to benefit from the customers’ default assumptions for a long while…Customer associations provide the brand with the buffer that shields it from crises and quality issues.”
The IPL brand is well settled in the minds of the Indian consumer and the controversies that have hit the cricket tournament have been unable to dislodge it. Given this ‘strong’ association of the Indian consumer with the IPL, it is not surprising that companies and their brands want to continue to be associated with the T20 tournament.
This, despite the fact that the IPL may have failed to deliver on its main product, which is an honestly and competitively played twenty over cricket match. For all we know that may not be happening, given that the owners of IPL teams (like Gurunath Meiyappan of CSK and Raj Kundra of the Rajasthan Royals) may have been betting against their own teams.
A report in the Mumbai Mirror newspaper points out “In his exhaustive and extensive report on the spot-fixing scandal in last year’s Indian Premier League, Justice Mukul Mudgal has raised suspicion about one particular game between the Chennai Super Kings and the Rajasthan Royals. While the 170-page report largely remains inconclusive over whether matches were fixed in the league, it clearly states this particular match needs to be investigated. “The Committee feels that there is enough information available on record to indicate that a further investigation is required in respect of the match held at Jaipur, between Rajasthan Royals and Chennai Super Kings on May 5, 2013,” the report says.”
Despite this, the Indian cricket fan (who also happens to be a consumer) is not done with the IPL as yet. Once a brand is established consumers typically tend to give it a long rope. As Dawar writes “Microsoft was able to retain most of its customers even through the life of the ill-conceived Windows Vista operating system, a disastrous product that would have been the death knell for a start-up brand. Apple’s reputation was barely dented despite the antenna problems of iPhone 4, AT&T’s spotty coverage, and the embarrassment of prematurely launching Siri, an artificial intelligence bot that was not quite ready for prime time, and faulty Apple iMaps. The brand easily withered these slipups.”
If a start-up would have made any of these mistakes, the game would have been more or less over for it. But that is not the case with big and established brands. Interestingly, the controversies started to hit the IPL only after the first few seasons, and by that time it had already managed to establish itself in the mind of the Indian consumer. As Dawar puts it “Customers are slow to switch, so that even if decline sets in, it is gradual allowing the company time to fix the problem and respond to challenges.”
This time that consumers give a big brand to fix itself can also lead to complacency, as happened in case of BlackBerry. As Dawar puts it “It allows managers the room they need to remain in denial about challengers and challenges. When BlackBerry sales continues to rise, even into 2012 in some parts of the world, its newly appointed CEO felt free to declare early that year, “We have fantastic devices in a fantastic ecosystem. I don’t think there is some drastic change needed.”
We all know what happened to BlackBerry after that. Consumers do give long ropes to big brands, but these are not infinitely long ropes. One day their patience does run out. Maybe, there is a thing or two, the Board of Control for Cricket in India (BCCI) which runs the IPL, can learn from this. 

The article originally appeared on www.FirstBiz.com on February 12, 2014
(Vivek Kaul is a writer. He tweets @kaul_vivek)