ICICI Bank

10 things the Cobrapost sting tells us

king cobra

Vivek Kaul

Stings in India till now have been carried out to expose politicians. The Cobrapost sting is the first sting that has brought into the public domain the murky way in which the big Indian private banks operate. But more than just exposing the murky way in which big banks operate, the sting brings out in the open other uncomfortable truths as well.

1. The finance minister P Chidambaram in his recent budget speech had said “There are 42,800 persons – let me repeat, only 42,800 persons – who admitted to a taxable income exceeding Rs 1 crore per year.” Of course no one took that number seriously. We now know why.
The Cobrapost sting clearly shows us that there are many more people with a taxable income of more than Rs 1 crore. The straightforward and more than helpful way in which the banks were ready to help invest the black money of the ‘supposed’ politician that the Cobrapost reporter was fronting for, can only tell us one thing: Banks seem to be doing this regularly.
And given this we can only conclude that there are many people out there with taxable incomes of more than Rs 1 crore, who don’t pay tax, than just 42,800. While it’s an obvious conclusion that did not need this visual evidence, but it is still an important conclusion nonetheless.
2. The second thing that the sting tells us is that those who have black money do not keep all of it under their mattresses. A lot of it as we know goes into buying real estate (largely benami). But the holders of black money seem to like to diversify their hoarded “wealth”. As the Cobrapost press release points out “(Banks) accept huge amounts of cash and invest it in insurance products and gold.” The money invested in insurance products is in turn invested in stocks, government securities and financial securities issued by corporations. So hoarders of black money do seem to be following the age old investing principle of “don’t put all your eggs in one basket”. They seem to be buying everything. From gold. To real estate. To stocks. And even have money in fixed deposits with banks.
3. By investing at least in gold and fixed deposits, hoarders of black money also show us that they like to have some liquidity in the assets that they own. Real estate is not terribly liquid and neither are insurance policies.
4. The sting also shows our love for gold which goes with the large amount of black money in this country. Very small amounts of gold can be used to store a large amount of black money as wealth. India has lot of gold because Indians love it is the normal claim that is made, but India also has a lot of gold because there is a lot of black money floating around.
5. The good bit is that instead of just lying around under the mattresses of people, some of the black money is coming into the financial system. When people buy insurance policies which in turn buy either debt securities issued by the government or the private sector or invest in shares issued by a company getting listed on the stock exchange, they are in some way financing someone who needs the money. That is the ultimate job of any financial system. To move money from those who have it, to those who need it. Now what proportion of the total black money comes into the financial system, that no one has any clue off. But its better than people just channelising all their black money into land and other forms of real estate. Also as more of this money comes into the financial system the greater are its chances of being detected.
6. The other interesting thing is that banks are helping channelise black money into insurance and not mutual funds. The main reason for this is the fact that insurance companies pay a much higher commission than mutual funds do, even though mutual funds remain a much superior mode of investing. It also goes with the cross selling that banks tend to do these days given that almost all of them own insurance companies. So if you have ever wondered why the moment you enter a bank they try to sell you all kind of insurance policies and not attend to the need you really went there for, you now know the answer.
7. Another major reason for banks selling insurance and not mutual funds to this set of clientèle who wants to put its black money to work is the fact that the know your customer (KYC) norms for mutual funds are much stronger than those required to invest in insurance. This is clearly an anomaly that needs to be done away with. Either mutual fund KYC norms need to be weakened or insurance KYC norms need to be strengthened. If it was not for these KYC norms, mutual funds remain a better way of hoarding black money given that they are very liquid. You can buy a mutual fund today and sell out tomorrow (unless you are buying a tax saving mutual fund that comes with a lock-in of three years). The same is not possible in case of insurance which comes in with a minimum lock-in of five years. Hence, mutual funds also need to be provided equal access to black money as insurance has. Also someone who has a lot of black money and is wealthy, doesn’t really need to pay for the “pure” insurance that compulsorily comes with the investment oriented insurance plans.
8. The sting also tells us that banks have double standards. If you are ready to deposit/invest a lot of money with/through them, then they are more than ready to lay out the red carpet for you. If you are not, then try changing your address once and wait for all the proofs they want. Or try asking for a locker, and wait for the bank clerk/relationship manager to tell you that you will also have to open a fixed deposit of a few lakhs to get a locker. Meanwhile as the Cobrapost press release points banks “ allot lockers for the safekeeping of the illegitimate cash, including special large size lockers to accommodate crores of hard cash.” Or try depositing money and the bank clerk will give you a nasty look for having to count the total amount of money you are depositing. Whereas if you have black money, the bank will come to your residence to collect it. As the Cobrapost press release points out the bank will “personally come to the residence of the client to take the black money deal forward and collect the cash, even bring along counting machine.” Wow.
9. What the sting also tells us is that how simple it is to create a fake identity in this country. The rapist Bitti Mohanty could do it. So can you if you have black money. And the banks will help you with it. As the Cobrapost press release points out “ICICI Bank officials were ready to make a suitable profile for the client, such as showing him as an agriculturist or engaged in some business, so as to make the investment unquestionable. On the other hand, Axis Bank officials proved to be a notch above in inventing fraudulent means. Use “sundry” accounts of the bank, they suggested, to deposit all the illegal cash from where it is to be routed into investment. Either use accounts of other customers, for a fee, to transfer money abroad, or use some shell company and take away a chunk of foreign currency as expenses toward business-cum-leisure trips.”
10. And to conclude, what the sting clearly tells us is that everybody who pays Income Tax in this country is basically an idiot who is being taken for a royal ride. If you have a lot of black money and you are not paying tax on it, chances are somebody out there is waiting for you with a red carpet.
Please go find him.

The < a href="http://www.firstpost.com/business/10-things-that-the-cobrapost-sting-tells-us-about-banks-661376.html">article originally appeared on www.firstpost.com on March 14, 2013 

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

 

'Tesco UK model shows organised retail will buy out kirana stores in India'


Few have approached marketing as a science like V Kumar. “My significant contribution to marketing is bringing science into it. Bridging science and practice,” says the IIT Madras alumnus, who has been greatly inspired by Philip Kotler. VK, as he is better known, is the Richard and Susan Lenny Distinguished Chair Professor of Marketing, and executive director, Centre for Excellence in Brand and Customer Management, Robinson College of Business, Georgia State University, in the US. He was recently ranked amongst the top five marketing scholars worldwide, based on his research productivity. He is also the recipient of eight lifetime achievement awards (in various areas of marketing), which is a record and a consultant to some of the biggest companies in the world. In this interview, he speaks to Vivek Kaul.
Excerpts:
One of your core areas of work has been customer loyalty. Can you talk about that?
Fourteen-fifteen years ago the universal metric was that if somebody is loyal they are the most valuable customers. We questioned that linkage. Why is loyalty equal to profitability? Maybe in contractual relationships it is so. But most of the transactions between a firm and a customer are non-contractual .I am free to go and buy a shirt anywhere, a computer anywhere, a phone anywhere. Very few things are contractual. Your monthly subscription to your wireless plan is contractual. Maybe your internet connection at home and utilities, like electricity are. Given that we started to empirically test the relationship between loyalty and profitability and found it to be a very weak relationship. We went to the companies and said that if you want to engage customers then don’t use loyalty as a metric.
How was customer loyalty defined?
Loyalty was defined as how long a customer has been shopping with a company. How much money out of the total wallet size they have been spending with the company. How frequently they are coming and buying from the company. But there was nothing about profitability or the fact whether the company is making money out of the relationship. Banks were the first ones to start looking at how much profit a customer was bringing in and that too they were looking backwards i.e. how much profit the customers gave in the past and not how much profit they were likely to give in the future.
And you challenged that notion?
Yes. This prompted us to come up with a metric to value the customer. How much profit a customer is likely to give in the future? And we went to companies, got their transaction database of what customers are buying, how much the companies is spending on them in direct marketing costs, and accounting for all this we calculated the gross margin for each product sold. With these three pieces of data we were able to put together a customer life time value(CLV) metric. We did this in 2003-2004 and one of the first companies to implement this was IBM. In a pilot study we tested the customer life time value model and they made $20million instantly. Then that became the mantra for them into becoming a customer centric organisation and allocating resources to those customers where the most bang for the buck is. In India we worked with ICICI Bank . We worked with the Wells Fargo bank in the United States. We worked with the HSBC bank in Middle East. In telecom we worked with AT&T for six years. Then in the retail environment we worked with the Polo Ralph Lauren, Gallery Furniture, etc.
So the focus was on profitable customers and not necessarily the loyal ones…
Yes. In 2007 what happens is that suddenly there is a headline that the telecom company Sprint fires 1000 customers because they were unprofitable. So was it the right thing to do? The media came to us and said, you said profitability is the metric to chase and they are doing that and they are firing unprofitable customers. I said, if they are unprofitable what can you really do? It’s better to fire them, so that they will go to competition and make them unprofitable. It’s good for the company. But what if these customers spread bad word of mouth about the company, I was then asked? Who will listen to them, I replied. Because they are bad customers and hence they were fired. So if bad customers go and say they were fired, the response they will get is that of course something must have gone wrong in the relationship.
How did the company handle the situation?
 Sprint also wrote about saying that these customers were calling the call centre eight times a month. At the rate of three minutes each time, it amounted to 24 minutes. Each cost call Sprint three dollars a minute. So the total cost was 72 dollars. And Sprint was making 15 dollars on them .So net net Sprint was losing 57 dollars a month on them. Over a year the company was losing over 600 dollars on a single customer. Sprint communicated to the customer base and told them that if they had not fired these customers, then the rest of the customers would have had to subsidize them..
Could you give us other examples of companies firing people?
After Sprint fired 1000 customers then the internet service providers Comcast and Verizon and all started putting a hold on the bandwidth. If people were hogging internet usage by constantly downloading movies and so on, then they said I am not going to service you or I am going to slowdown your speed. Proactively they tried to ensure that they did not lose money on somebody. They also fired a few consumers..
Some of your more recent work has been in the area of trying to figure out who is influential in the social media and using that insight in marketing. Could you take us through that?
This is the new wave. In 2008 me and my team developed this model. We basically wrote a software that could track everybody’s twitter and facebook conversation. Therefore when you put something on Facebook and others like it, then my software will see it. My software will also capture the tweets. You can ask if all this is legal? They had an open gate system at that point of time. Anybody could monitor anybody. Now they are putting plugs.
So how did the software work?
My software could crawl and track who is on Facebook and Twitter, what they are saying, who is tweeting to whom etc. Not only that, if I tweet something, you forward it to somebody else, they forward it to somebody else and they again forward it to somebody else, we could find out how far your tweet spreads. How far your Facebook like spreads? So when I tweet to you it spreads to 10,000 people. But if I tweet to someone else it only spreads to 200 people. So I then try and I figure out, why in a two week period your tweet spreads to 10,000 and the other person’s goes to only 200 people. And I find that you have more followers on Facebook and Twitter. And you are pretty active in the social media world and you are talking about multiple subjects or even a single subject but more of it. And whenever you say something to somebody they also reciprocate to you. We come up with eight measures like that. With the help of this we can pretty much say something like that if I use you as a seed to plant a message then it will reach 8500 people. That is what we have done.
Could you take us through a real life example on the above subject?
An ice cream retailer from Mumbai approached us and asked us to help them to promote this ice-cream. Our target group is college students and young adults, they said. They are the ones who are going to spread the word. They are active in the social media. So we want to use social media. We have a very limited budget.
So what did you do?
We created a stickiness index. Of all the conversations happening we tried to figure out who are the people who have a high degree of category relevance. So in this case who is talking about ice cream related products on Facebook or Twitter. People could be talking about milkshakes, or gelato. It could be just ice and of course ice cream. We applied the stickiness index on the influencers i.e. if there are 10,000people with a high customer influence effect meaning those who can spread the message the farthest, applying the stickiness index, we narrowed down the number to 300. So we take this 300 and bring them to the ice cream parlour and got them to taste the ice-cream. We also asked them to create their own ice cream and give a name to it.
And what happened after that?
After this we asked these guys to spread the word about the ice-cream. So in next step they put it up on Facebook. Tweeted about it. Other people who saw this on Twitter could take the hashtag associated with the tweet to the ice cream parlour and could buy the specific ice-cream created by the person tweeting. The parlour boy registered the hashtag. At the end of each day our computer read from each ice cream parlour of this chain and related it to the person who sent the message on Twitter. So what is in it for the person sending the message? Each week we had a competition where the winner got a t-shirt, tote bag, etc.
Which chain was this?
This was the Hokey Pokey ice cream chain.
So there are varying things that companies get their customers to do for them…
Yes. If I am the customer and you are the firm, then I can buy from you. If not buy, I can refer customers to you through incentives. If not, then I can write about you on my social media. If not, I can give you ideas to improve your service quality. Introduce this product. Add this feature to your product. When I give ideas to you, you take that idea commercialise it and then whatever profits you make you give a share of profits to me.
Can you give some examples on that?
Many women when they are getting married in the United States hunt for the right bridal wear and often they don’t find the one they like. So they create their own design and send it to the bridal wear company which can post it on its website and say here is a design which one of our prospective customers created. How many others like this? If 200 others like it and are ready to buy it then the company can produce 200 dresses of that design at the stated price and share profits with the person who came up with the design. Another good example is IBM. They put up the Linux operating system as an open source software. So you and I can create an application for IBM that runs on Linux code, give it to IBM, they will market it and share the profits.
Any other examples?
A fast food chain got into trouble when on a YouTube video somebody caught two of its employees picking their nose and then putting their fingers into one of their products. This was a challenging situation. The company decided to have a competition and let the customers design the ingredients. They had a competition. And two people won. The product the winners had designed entered the menu of the fast food chain and the profit was shared.
Can organised retailing compete with mom and pop stores in India?
Organised retailing at best in India could be at 9%. My prediction is this that mom and pop stores or kiranas as we call them will become more and more sophisticated. Today the store owners know people by their names, as the number will grow they will have to start building a database, but they don’t have the capabilities. So organised retailing will start buying mom and pop stores individually. And then they will put all of them under one banner. It will be like how Tesco is operating in the U.K with different store formats.. You have Tesco supermarket, convenience store, street corner store, express etc. So that is the way in India you will be see this evolving because otherwise there is no growth for them.
What is the evidence from other emerging markets?
If you look at evidence from China organized retailing has got more traction. That’s because they did not have many mom and pop stores to begin with. They were cultivating their own things which was locally community based. But with more cities coming up and migration of people from rural areas to cities, gives more scope for organised retailing in China. Also space is not an issue in China. In India space is a constraint. Look at China and India. China is much bigger than India but the population is pretty much similar. Look at Brazil, it is as much bigger than India but the population is maybe one sixth that of India. So they also have space.
Any other factors at work?
There is another major factor on which it depends whether they will survive or not, it is the homogeneity of the population in consumption behaviour. Does the country as a whole consume common things or there are regional biases? In a country like Brazil people eat similar foods that every retailer can sell. In India between South, East, West and the North, there is so much heterogeneity that you need localized catering and marketing .So consumption behaviour varies therefore unless you are willing to carry heterogeneous products in each of the locations it is tough. But the organised retailers have a choice now. Do they invest capital and build their own infrastructure or should they buy out these kiranas and build them up? And clearly I see the latter as a more viable strategy than putting up their own real estate.
Should we allow the likes of Wal-Mart into India?
Wal-Mart is a value conscious store. Even if Wal-Mart is there in every place, the way they are located is typically outside the city limits. So only people with time, motivation and a vehicle, will be able to go and buy things. And the combination of these three things is very rare. Therefore their ability to grow organically in a country like India by systematically expanding the number of outlets is going to be difficult. There will be a market if they are content at not being the largest retailer. If they say in India I am one among many, they will have a presence. Maybe at some point in the future, things might change, like Wal-Mart buying other retailers and that’s the way they can expand. Their specialty is supply chain and turning the inventory over multiple times than other retailers. They cannot turn it over multiples times here. Each time if they make a 1% margin they get a higher margin due to turning the inventory over multiple times. Here I don’t see them turning it over as many times as in other markets. It’s very difficult to do that.
(The article originally appeared in the Daily News and Analysis on September 10,2012. http://www.dnaindia.com/money/interview_tesco-uk-model-shows-organised-retail-will-buy-out-kirana-stores-in-india_1738905)
(Interviewer Kaul is a writer. He can be reached at [email protected]