Category: business

YoY calculations should be based on Hindu calendar

Deepak Shenoy at Capitalmind has an excellent post dissecting the 4.2% drop in the Index of Industrial Production in October. One of the keys to the drop, he says, is that this year both Diwali and Dasara fell in October, and since factories give workers off for these two festivals output falls. He has an informative (but ugly) graph showing this:

I was talking to a retailer recently and he was talking about sales in terms of Indian festivals – like Diwali and Dasara and so on. Retail analytics, we figured, need to take into account things like “Diwali sale”, “Aashada sale” and so on.

So while we have been using the Gregorian calendar for most purposes, it seems like our business cycle still follows the Hindu calendar. From this perspective, issuing statistics based on Gregorian months (such as October YoY IIP) is simply wrong, and has the ability to mislead.

I hereby propose that we go back to our roots and start publishing these YoY statistics on Hindu months. The only problem is we won’t know how to deal with the “adhika maasas”.

The cross-selling epidemic

Cross-selling is the phenomenon where you try to get more value out of your existing customers by selling them other things. And from the looks of it it is reaching epidemic proportions in India.

Yesterday a guy came up to me at the gym and asked me to try out some “power yoga” group exercise classes. I told him I wasn’t interested, and he continued to talk (I was on the treadmill so couldn’t run away). Of course my membership includes any group classes so I don’t have to pay more to do “power yoga” but the economics are not the same from this guy’s perspective!

Then for the last two weeks my gym (Gold’s Gym in Jayanagar) has been full of advertisements for protein supplements. And today some of their salespeople had even set up shop inside the gym hawking their stuff. From conversations I overhear in the locker room I know that several other members of the gym regularly take such supplements but the kind of advertising within the gym was way too intrusive!

Later today I had gone to visit a dermatologist (who I found via Practo) for a rash I have on my hand. The doctor seemed least interested in checking me and more interested in putting me through a battery of blood tests (which were done in the lab attached to the clinic). I don’t know why I went along but after becoming poorer by a thousand and three hundred rupees I figured that the tests included liver function and thyroid function test! Why a dermatologist would need such tests I don’t know! Anyway I’ll just pick up the reports tomorrow and run! Oh and when I was walking out the receptionist helpfully pointed out that I could buy the prescribed medicines at the little pharmacy also in the clinic! I refused an walked out!

A few months back I’d gone to my ophthalmologist for a routine checkup. After having got my eyes tested I asked him to check for my power on contact lenses also. He said he’ll do so if and only if I were to buy the lenses from his clinic! Since I’d found those lenses to be of poor quality the last time I’d got them, I scooted. Oh, and this guy has been my regular ophthalmologist for over twenty years!

This brazen cross-sell seems so suboptimal that it possibly drives away customers (but from what I hear, if every doctor indulges in such practices there isn’t much choice anyway!). I wouldn’t have minded paying an additional sum (over and above what I’d paid for my generic eye test) to get my eyes tested for contact lens power also. But this option (which would’ve worked out more simply for both of us) wasn’t available! Bizarre, I tell you!

Pricing markets in cabs and beer

Earlier this evening Udhay and I shared a cab back after beer and biryani. We don’t stay particularly close by (using the place we met as point of reference), but I think it was pareto optimal for us to share the cab rather than take two cabs. I got off first at my place and Udhay went on to his place. We used Uber’s fare splitting feature for the trip.

I just got the bill and saw that I’ve been charged exactly half of the total bill. Given the distance from our meeting point to my place and Udhay’s place it perhaps was pareto optimal but had we met any closer it may not have been a fair split – if the place we met was closer to my place than my place is to Udhay’s, then splitting the fare equally would have been unfair to me – for I would have paid more for sharing the ride than I would have had I taken a cab by myself! Can Uber do better?

Once we have enabled the ride sharing and splitting thing, Uber knows who all are travelling, and Uber knows where each of us gets off (if our phones are on, that is). Based on where we break off from the cab, can Uber estimate where each of us got off and split the fare accordingly? Given how good their app has been so far, I would expect them to tweak their ride splitting algorithm and introduce this measure soon.

Going a little back in the day, Udhay and I were at Punjabi By Nature in SuddgunTepALya. We were there during the restaurant’s “happy hours” where they have a buy-one-get-one-free offer on beer. However, it was after we had ordered a “tray” of samplers that we were told that the Bogof didn’t apply to the tray. We also ordered another glass of beer, which duly arrived with a “partner”.

There are two things about Punjabi By Nature’s pricing that I found interesting. The first bit was the non-applicability of “happy hours” to the tray. Is it a measure by them to reward their regular customers who know what to drink at the cost of first-timers who invariably ask for the sampler set? Any other explanation for happy hours not applying to the tray?

The second interesting bit is about the pricing of the drinks itself. A 500ml glass of beer was priced at Rs. 240 plus taxes, which is par for the course for a microbrewery in Bangalore. In most other microbreweries, the sampler trays are priced “reasonably”, approximately at the same per-ml price as the glasses of beer. Here, though, the tray (on which we didn’t get Bogof, remember) was prices at Rs. 625 per taxes! Of course, there were six beers that were sampled in the tray and the quantity was also significantly more than at other sampler trays (here it was at least 150ml per glass if I’m not wrong; in other microbreweries in Bangalore it’s more like 100ml), yet the premium in pricing for the samplers was significant!

I wonder what makes other microbreweries price their samplers at about the same per-ml cost as their glasses – given that the standard practice is to incentivise customers to buy in larger units. I also wonder what makes Punjabi By Nature impose a “penal” price (assuming it was 150ml per sample, it works out to about 70 paisa per ml. The glass of beer (not accounting for happy hours) costs 240/500 = 48 paisa per ml, so the sampler is 50% more expensive) on its samplers. For now that I know how it’s priced, the next time I go to Punjabi By Nature I’m going to order glasses of beer (hopefully in happy hours) and not the sampler!

Pricing is a funny game, I tell you!

Categorisation and tagging

Tagging offers an efficient method to both searching and for identifying customer preferences on the axis most appropriate for the customer

The traditional way to organise a retail catalogue is by means of hierarchical categorisation. If you’re selling clothes, for example, you first divide it into men’s and women’s, then into formal and casual, and then into different items of clothing and so on. With a good categorisation, each SKU will have a unique “path” down the category tree. For traditional management purposes, this kind of categorisation might be useful, but it doesn’t lend itself well to both searching and pattern recognition.

To take a personal example (note that I’m going into anecdata territory here), I’m in the market for a hooded sweatshirt, and it has been extremely hard to find. Having given up on a number of “traditional retail” stores in the “High Street” (11th Main Road, 4th Block, Jayanagar, Bangalore) close to where I stay, I decided to check online sources and they’ve left me disappointed, too.

To be more precise, I’m looking for a grey sweatshirt made with a mix of cotton and wool (“traditional sweatshirt material”) with a zipper down the front, pockets large enough to keep my hands and a hood. Of size 42. This description is as specific as it gets and I don’t imagine any brand having more than a small number of SKUs that fit this specification.

In case I were shopping offline in a well-stocked store (perhaps a “well stocked offline store” is entering mythical territory nowadays), I would  repeat the above paragraph to a store attendant (good store attendants are also very hard to find nowadays) and he/she would pick out the sweatshirts that would conform to these specifications and I would buy one of them. The question is how one can replicate this experience in online shopping.

In other words, how can we set up our online customer catalog such that it becomes easy for shoppers to search specifically for what they’re looking for. Currently, most online stores follow a “categorisation” format, where you step into two or three levels of categorisation, where you’re shown a large assortment. This, however, doesn’t allow for efficient search. Let me illustrate by my own experience this morning.

1. Amazon.in : I hit “hoodies” in the search bar, and got shown a large assortment of hoodies. I can drill deeper in terms of sleeve length, material, colour and brand. My choice of material (which I’m particular about) is not there in the given list. There are too many colour choices and I can’t simply say “grey” and be shown all greys. There is no option to say i want a zip-open front, or a cotton-wool mix. My search ends there.

2. Jabong (rumoured to be bought by Amazon shortly): I hover over “Men’s”, click on “winter wear” and then on “hoodies”. There is a large assortment of both material (cotton-wool mix not here) and brand. There are several colours available, but no way for me to tell the system I’m looking for a zip-down hoodie. I can set my price-range and size, though. Search ends at a point when there’s too much choice.

3. Flipkart: Hover over “men’s”, click “winter wear” and then sweatshirt. Price, size and brand are the only axes on which I can drill down further. The least impressive of all the sites I’ve seen. Too much choice again at a point when I end search.

4. Myntra (recently bought by Flipkart, but not yet merged): The most impressive of all sites. I hover over “Men’s” and click on sweaters and sweatshirts (one less click than Jabong or Flipkart). After I click on “sweatshirts” it gives me a “closure” option (this is the part that impresses me) where I can say I want a zippered front. No option to indicate hood or material, though.

In each of the above, it seems like the catalog has been thought up in a hierarchical format, with little attention paid to tagging. There might be some tags attached such as “brand” but these are tags that are available to every item. The key to tagging is that not all tags need to be applicable for all items. For example, “closure” (zippered or buttoned or open) is applicable only to sweatshirts. Sleeve length is applicable only to tops.

In addition to search (as illustrated above), the purpose of tagging is to identify patterns in purchases and know more about customers. The basic idea is that people’s preferences could be along several axes, and at the time of segmentation and bucketing you are not sure which axis describes the person’s preferences best. So by having a large number of tags that you assign to each SKU (this sadly is a highly manual process), you give yourself a much superior chance of getting to know the customer.

In terms of technological capability, things have advanced much in terms of getting to know the customer. For example, it is now really quick to do a Market Basket Analysis based on large numbers of bills, which helps you identify patterns in purchase. With the technology bit being easy, the key to learning more about your customers is the framework you employ to “encase” the technology. And without efficient tagging, you are giving yourself a lesser chance of categorising the customer on the right axis.

Of course for someone used to relational databases, tagging requires non-trivial methods of storage. Firstly the number of tags varies widely by item. Secondly, tags can themselves have a hierarchy, and items might not necessarily be associated with the lowest level of tag. Thirdly, tagging is useless without efficient searching, at various levels, and it is a non-trivial technological problem to solve. But while the problems are non-trivial, the solutions are well-known and advantages large enough that whether to use tags or not is a no-brainer for an organisation that wants to use data in its decision-making.

 

The finiteness of the global advertising market

In this excellent post on social media companies, Aswath Damodaran articulates something I’ve long wondered – about the finiteness of the global advertising market. Given the number of companies that come up with new mechanisms to match advertisers with consumers, one can be forgiven for believing that the market for advertising is infinite. That the more avenues you create for serving advertisements to people, the more the advertising that will flow, and there won’t be a let up anywhere.

This picture here is from Damodaran’s blog (which I recommend you subscribe to, since every single post is worth reading). Based on the numbers that Damodaran presents here, the overall growth of the worldwide advertising market seems rather low.

Source: Aswath Damodaran (http://aswathdamodaran.blogspot.in/2014/11/twitters-bar-mitzvah-is-social-media.html). All numbers in billions of dollars

The number to take away for me from this calculation is the shrinking pie of non-digital advertising. Based on these numbers, the total non-digital advertising market in 2008 was $468 billion. In 2014, going by the same numbers this is down to $400 billion. This de-growth is significant and holds important lessons for other sectors that are dependent on advertising.

So far, the flow of advertising capital has been taken for granted and the number of business plans made (in both old and new economies) with an assumption on advertising growth is endless. If you want your local bus utility to make more money, you rent out advertising space on buses. If a low-cost airline wants to make more money, they put advertisements on the back of seats (a very good idea since it gets undivided attention for the duration of the flight). It is a surprise that insides of toilet stall doors (which again get undivided attention) haven’t fallen prey to advertisements yet.

The point here is that while it is all well and good to plan businesses based on advertising income, what we need to keep in mind is that the advertising pie in the long term grows at the same rate as the global economy. Sooner or later the waters will recede to the natural level, and then we will know who is swimming naked!

 

Perverse regulations

So Uber has tied up with PayTM to process its payments without a second factor of authentication in order to comply with RBI regulations. This is a major win-win for both companies. Uber can now gain access to the part of the relatively affluent Indian population that does not own a credit card (this is a significant segment). PayTM now has a compelling reason to sign up users for its Wallet solution, since all Uber customers now form a sort of a captive audience for this solution.

While discussing this on twitter, someone suggested that once the new Payment Bank regulation is brought in by RBI, wallet solution providers such as PayTM can then set themselves up as Payment Banks.

The problem with that is that if PayTM becomes a payment bank then it will have to comply with RBI regulations of second factor authentication and thus Uber users will not be able to use their PayTM wallets (now accounts) for seamless payment!

#Thatzwhy we need strong regulations.

The Steven Davis Role

The first encounter between Liverpool and Southampton in the 2013-14 English Premier League season happened at Anfield in September, and Southampton won 1-0 with a Dejan Lovren goal from a set piece. So when the two sides met again at St. Mary’s in the latter half of the season, with Liverpool chasing the title, it was known that it would be a tough game for Liverpool.

Southampton dominated the first half, playing a front four of Steven Davis, Adam Lallana, Jay Rodrigues and Rickie Lambert. However, it was Liverpool who scored in that half, and led 1-0 at the break. Here is a picture I found on twitter that was uploaded at half time:

Southampton manager Mauricio Pochettino decided to change things for the second half. He took off his most unspectacular forward player Steven Davis and replaced him with Gaston Ramirez, the promising Uruguayan. Soon, Southampton unravelled and Liverpool completely dominated the second half as they won 3-0.

Now, there is no doubt that Ramirez is more talented than Davis and is definitely a better player in general. However, in the context of the rest of Southampton’s team, Ramirez’s introduction proved to be a disaster and there was little cohesion in their attacking play from the time he came on. Southampton became a disjointed team and went out of the game.

This has led me to define what I have come to call the “Steven Davis role”. It is basically a player who is not individually the best, but provides some kind of a glue that holds the team together. The player’s key skill, rather than looking at it from traditional axes such as passing or shooting or tackling or intercepting, is to change position, and to make sure that the team holds its shape at all times. It is to make sure that any players who are out of position are covered for, and that the attack retains its shape and focus.

Now, it must be remembered that last season Southampton’s attacking play was primarily based on strong movement and interplay between their front four. They had nominal positions defined, but they hardly stuck to those as they moved around in attack. Thus, Lambert who would start upfront would sometimes appear on the wing, with the nominal “number ten” Lallana going forward, for example.

And key to this system was Davis, who wasn’t particularly talented, but who would move in a way that would balance the attack. If the other three would move left to attack, he would take up a position slightly to the right – not too far away from the attack but providing a kind of counterbalance. He never led attacks himself, but he was always available to support the others’ attacks. And this is what made Southampton dangerous.

Once Davis had gone off, Southampton had no one to play this role. The kind of interplay they had in the first half disappeared. And their attacks became toothless and each attack had only one dimension which was easy to cover even for Liverpool’s normally shaky defence, as they kept a clean sheet.

It was a similar case I saw last night at the Camp Nou, with Barcelona’s Pedro Rodriguez playing in a “Steven Davis” role. Messi started in the middle and Neymar wide on the left. Pedro nominally started on the right. But soon it became clear that he was a kind of a “wide support striker” – his job was to appear in positions that complemented the rest of the attack rather than being in positions where he led the attack (though he did lead one glorious counterattack where he hit the post). It was like a kind of balance that he offered the team, and ensured their attacks had coherence (of course this being Barcelona they had Iniesta and Rakitic just behind to offer more “focal points”).

Last night was the last game of Luis Suarez’s ban, and it will be interesting what Barcelona do with him when he gets back this weekend. The instinct will be to remove Pedro in his favour, but it is not clear if an attack of Messi-Neymar-Suarez will be able to offer the same kind of coherence as an attack of Messi-Neymar-Pedro. That said, Suarez is an extremely intelligent player and showed in his Liverpool days that he is capable of being a “fighter”, so he might as well be played. But that will mean that Neymar will have to occasionally play the Davis/Pedro role, and it is not clear if he is capable of doing that.

We are in for interesting times.

The post has so far focussed on football but it is evident that his kind of a role is necessary in other team situations, including corporate teamwork, also. Sometimes you need that one guy who need not be individually spectacular, but is versatile and mobile enough that he can do several things, fill in for different people and make sure that any team he is part of will be “complete”. And in the absence of one such guy, the team can lose coherence and fail in its task.

Studs, fighters and spikes

In a blog post yesterday I talked about the marriage and dating markets and how people with spikes which can be evaluated either highly positively or highly negatively were more likely to get dates, while in the arranged marriage market, you were better off being a solid CMP (common minimum program).

The question is how this applies for jobs. Are you better off being a solid performer or if you are someone who has a quirky CV, with some features that can either be heavily positively or heavily negatively by some people. How will the market evaluate you, and which of them is more likely for finding you a job?

The answer lies in whether the job that you are applying for is predominantly stud or fighter (apologies to those to whom I mentioned I was retiring this framework – I find it way too useful to ditch). If it is a predominantly fighter job – one that requires a steady output and little creativity or volatility, you are better off having a solid CV – being a consistent 3 rather than having lots of 5s and 1s in your rating chart. When the job is inherently fighter, what they are looking for is consistent output, and what they don’t look for is the occasional 1 – a situation where you are likely to underperform for whatever reason. Fighter jobs don’t necessarily care for the occasional spike in the CV – for there is no use of being extraordinary for such jobs. Thus, you are better off being a consistent 3.

If it is a stud job, though, one where you are likely to show some occasional creativity, you are more likely to get hired if you have a few 5s and a few 1s rather than if you have all 3s. If the job requires creativity and volatility, what the employer wants to know is that you are occasionally capable of delivering a 5 – which is what they are essentially hiring you for. Knowing that people who are good at stud jobs have the occasional off day, employers of stud jobs are okay with someone with a few 1s, as long as they have 5s.

So whether you should be looking for a stud or a fighter job depends on what kind of a professional career that you’ve had so far – if you’ve had a volatile career with a few spikes and a few troughs, you are much better off applying for stud jobs. If you’ve been a steady consistent performer you are better suited for a fighter job!

Of course you need to remember that this ranking as a function of your volatility is valid only if you were to hold your “average rating” constant!

Looking for a voicemail product

I’ll be traveling abroad for 2-3 weeks next month, during which I will not have access to my phone (don’t plan to take international roaming). In this context, what I need is some kind of a voicemail product – where any call made to my airtel number (which will be “switched off”) will get redirected to voicemail, which informs the caller that I’m traveling and they should leave a message. And I should be able to log on periodically to some website where I can listen to my collected voicemail, and possibly call back some of them.

Does such a product exist? If not, does there exist a market for this, or does everyone who wants to use a product like this can afford international roaming?

And while we are at it, are there any good voicemail apps that I can use on my Android phone (when my phone is in the sim and connected to the network)?

Thanks much!

A culture of thinking and differentiated services

In a very interesting Op-Ed in Mint this morning, Anurag Behar argues against vocational training at the school level, arguing that the purpose of school education is to enable children to think, and that the ability to think is paramount in offering superior services.

He gives the example of a welder who understands basic geometry and the mechanics of metals, saying such a welder can offer superior services to one who has just been trained in welding. Thus, a welder who had been through school and thus understands the basics of geometry and mechanics can do a much better job as a welder than one that has just learnt how to weld.

Now, while this culture of thinking is important, another important pre-requisite is the culture of differentiated services. The question we need to ask is if the market here is mature enough to pay a premium for the welder who knows geometry and mechanics compared to an illiterate welder.

Intuitively it makes sense – an educated welder is likely to be more careful in his work and is likely to offer much superior quality. However, what I’m not so sure of is that the market in India is currently mature enough to recognize this increase in quality and thus pay a premium for such services. And unless the market matures to pay a premium for an educated welder, an educated person will choose a career other than being a welder and we will be only left with uneducated welders offering poor quality.