business – Page 25 – Pertinent Observations

The Importance of Online News

Reading Deepak Shenoy’s excellent article on insurance this afternoon the first thing I wondered was about why I had never read anything like it before. It was so intuitive and insightful, and so obvious, yet I didn’t recall reading anything like it elsewhere in the “mainstream media” (quotes because that implicitly implies Yahoo! is not mainstream). And then I started thinking about Ajay Shah’s brilliant blog post about the undersupply of criticism.

Ajay mentions in his article that most articles on China (which need cooperation from sources in the Chinese government for information) tend to be favourable to the country, since no one wants to risk cutting off the supply of information (or worse) by antagonizing the Chinese government. A similar relationship, either implicitly or explicitly, is enjoyed between media and advertisers.

A quick glance through any business newspaper, or even a mainstream broadsheet, would tell you that financial institutions (this includes banks, asset management companies, insurers and brokerages) are heavy advertisers in these media. Given the amount of money papers make from these sources, it doesn’t make much business sense for them to publish opinion pieces that are critical of these heavy advertisers. There are papers (especially some broadsheets) that claim to enforce neutrality and fairness in their reporting, but even there it is hard to come across articles that are highly critical advertisers. The potential loss in revenue is too big a risk to take.

The biggest advantage of new media is that it provides alternate channels which depend on alternate sources of revenue. Think about the number of times you’ve seen banks or insurance companies advertising in the Yahoo! sidebar, and then compare that against the number of times you’ve seen such advertisements in newsprint. Similarly, there will be companies who are heavy advertisers online, but not so in broadsheets so you will find the latter to be more willing to be critical of them.

From the reader’s perspective it is important to get news and opinion not only from several sources, but also from several kinds of sources in order to get a balanced view.

The other side of the long tail

There are several people who talk about how the advent and the popularity of the internet has resulted in markets in many a long tail. Without loss of generality, let us just take the market for writing here. Several niches which were earlier not served since there wasn’t enough of a dedicated audience in a particular geographical area for a certain set of articles and so no one bothered to write and disseminate them.

For example, it is unlikely that there was enough of a “market” for a series of posts on the Studs and Fighters Theory in the days before the internet – a market big enough for a newspaper or a magazine or a journal to bother publishing. Now, the internet not only allows me to publish it without effort or cost, but also lets me know that there is enough of a market for this kind of a series for me to bother publishing it rather than just explain it to a few friends in a smoky bar or cafe.

Now, the funda is that sometimes the long tail can exist in geographically coherent markets and not online! For example, all of yesterday, while at work i was frantically searching for sources to follow the BBMP election results. Everyone led me to this TV9 video streaming but it didn’t open on my office network and I couldn’t find any other live sources that were constantly updating the results. I had had similar problems following the results of the Karnataka Assembly elections two years back.

It was then I realized that the “traditional market” can itself be the long tail! For example, the amount of information I found about the elections in this morning’s papers was really impressive – in fact, the much ridiculed ToI had pretty good coverage of the polls, as did the Deccan Herald or the New Indian Express. Earlier in the morning, yesterday, too there were the Kannada channels which focused exclusively on the election results.

What I’m saying here may be fairly obvious, but just wanted to point out that long tail need not refer exclusively to the new media, or new channels. When you look at it in certain ways, several of the traditional media are also catering esssentially to a long tail, though when there was only the traditional media, no one really used the term.

Talking of BBMP elections, take a look at this graphic that was presented in the Deccan Herald today. Don’t you see a pattern in this?

CTR

Ok this is a post that has been delayed by about a couple of weeks. One of those things that has been in my head now for a while so writing it. So some two or three Sundays back (more likely to be two) I went to the famous CTR in Malleswaram for breakfast. For the first time ever. Yeah I now it’s supposed to be a classic place and all that but it’s only now that I’m getting acquainted with north/west parts of Bangalore so had completely missed out on this so far.

So as per what several people had told me at various points of time in life, the Masala Dosa at CTR was brilliant. Unparalleled. The difference between CTR and Vidyarthi Bhavan is that the former makes masala dosa just the way that other restaurants do, but only much better and tastier. The dosa at Vidyarthi Bhavan is a different animal altogether and am told the has very different composition to what is made in other restaurants.

There is another important difference between CTR and Vidyarthi Bhavan and thats in terms of service and crowd management. Vidyarthi Bhavan does an excellent job in this regard, striving to “rotate table covers” as quickly as possible. Within moments of you taking your seat, your order gets taken, the dosa arrives, as does the bill and a look from the waiter asking you what the fuck you are doing there considering you have finished your tiffin. Extremely efficient from the point of view of the restaurant (in terms of maximizing capacity) and for customers looking for a quick dosa, but not so from the point of view of people who want to linger for a while and chat.

Unfortunately the one time I’ve been to CTR (2 sundays back) I was in a bit of a hurry since I had to go attend a quiz. Maybe the intention of the restaurant is to allow customers to sit for a while and chat up, but I don’t know if you can actually do that since at any given point of time (reports might be biased since this was a Sunday morning, 9am) there are four people waiting for you to leave so that they can grab your seat. This large crowd that is in waiting is also I think a result of slow service at the restaurant (simple queuing theory – for a given arrival rate, the slower the service rate, the more the average queue length).

There were some simple tasks in which CTR didn’t do so well. For example, making a customer wait for ten minutes before you take his order is not only ten minutes wasted for him, it is also ten minutes of absolutely unproductive “table time” – something that a fast food place like this can’t really afford. And then the ordered items also took a long time to arrive (again, most people at CTR have the same order – one “masaal” so I do hope the make dosas “to stock”) – but then their kitchen capacity may not match up to the capacity of the seating area (which isn’t too much). You pay bill at the table itself rather than at the counter which means you sit there for even longer. And so forth.

This post is supposed to be a part of this series that I was writing some four years back examining the Supply Chain practices and delivery models at various fast food restaurants in Bangalore. I have only one observation with respect to CTR and based on that I don’t give it very high marks in terms of supply chain and delivery efficiency. However, the dosa there is so awesome that I’m sure that I’ll brave the crowds and go there more often and might be able to make better observations about the process.

Immigrants

One thing I have noticed in Bangalore – and I’m not sure if it is true in other cities in India but I have a feeling that it is – is that immigrants inhabit parts of the city which natives wouldn’t really want to live in. I’m making this observation based primarily on one data point – Ejipura.

Till a couple of years back, the only reason I’d heard of this erstwhile slum is because houses there would get flooded every time it rained. Apart from that, it was a fairly nondescript part of Bangalore “somewhere close to the 201 route”, and generally considered an area to be avoided.

And now, slums have been replaced by swanky looking apartments and office buildings, where IT companies and people who work in them have set up tent. What was earlier an unlivable part of the city has suddenly become livable. The roads remain the same though. I don’t know if the houses still get flooded. There are open drains all around. And I have no clue how localities such as this get their water and sewerage supply.

Oh and there is massive dressing up of addresses. It is not Ejipura, it is Koramangala 6th block. Similarly, it is not Byrasandra, it is Jayanagar 1st Block East. And so forth.

I think what has happened is that when the city grew in the first fifty years of independence, farmland in the villages around the pete and cantonment areas was acquired and layouts were planned. The villages themselves were left alone by the BCC/BDA. And people who migrated to the city back then (let’s say at least 20 years back) applied for and got sites in one of these planned localities where they constructed their houses. And so I grew up in this house built on a BDA-allotted site, but up the road from my house was the old Kathriguppe village.

Now, what is happening is that these villages are selling out, to private parties. Knowing the value of the land all around the village (basically in the BDA areas) , people in these villagers have suddenly realized the value of the land that they are sitting on, and are selling to private builders, who either build apartments (most of the cases) or “revenue layouts” (rare). And given that these erstwhile villages haven’t traditionally been considered livable by people living in the city for a long time, they usually end up being occupied by recent immigrants.

FabIndia Koramangala

There are very few clothing stores that I can say I’m in love with. There are very few stores where I feel like buying a large proportion of merchandise on display whenever I visit it. There are very few stores where just the atmosphere makes you buy much more than you had planned to. And it’s a pity that on two of my visits to the store, I bought nothing.

I haven’t been to too many FabIndia stores outside Bangalore (only a handful of stores in Gurgaon and maybe one in Delhi) but having shopped a few times at the FabIndia store in Koramangala, I feel distinctly underwhelmed whenever i go to any other outlet. Having been several times to this beautifully designed house, I find FabIndia outlets housed in less spectacular buildings sad. Of course there have been times (including two days ago) when I’ve shopped at other outlets but the experience simply doesn’t come close.

The first time I went to the store was some four or five years back when Anuroop wanted to check out kurtas. I think we went there on Bunty’s recommendation but I remember that I hadn’t bought anything. I had quickly made amends for it a couple of months later when I bought a couple of shirts, and then a year later when I bought a dozen shirts at one go!

The only other time I went there without purchasing anything was yesterday morning, when I was visiting the store after a gap of some two or three years. The first thought was one of guilt – of having shopped in a less spectacular Fabindia store (the one at Kathriguppe) just the previous night, and then as I got over it I got overwhelmed with the variety on display. I suddenly got afraid that I might over-spend and made a dash for the exit.

I wasn’t gone for too long, though, as I returned in the evening with Priyanka, and this time we discovered something even more spectacular – something that I had completely missed during my hajaar earlier visits – the store cafe. The brownie was decent, and the coffee was just about ok, but that didn’t matter one bit. Once again, it was the atmosphere at play, and that the coffee shop had in plenty.

It’s something like a small arena. If you can perform some visual art (say a play or a dance) in a five feet square area, this is just the place for you! All around the 5×5 “well” (which is full of pebbles) are stone benches, at different levels. Cushions have been placed on some arbitrary benches, and we understood that that’s where it was supposed to sit. There wsa some music that I didn’t quite recognized but was quite pleasant, and the wooden trays in which the waiter brought our coffees were also beautiful – I might have bought something like that from the store had I been in a spendthrift mood yesterday!

If you are in Bangalore and are interested in cotton clothes you should definitely check out this store sometime. It’s in Koramangala, in the extension of the intermediate ring road. Make sure you go there leisurely, for there is plenty to see and buy (the inventory is about six times as much as that of an “ordinary” FabIndia store). And while you are there, do visit the cafe and lounge around there for a while. And think about Priyanka and me while you are there.

Orange Juice and Petrol

So I was reading this article by Ajay Shah about administered pricing for petroleum. He does an excellent (though it gets a bit technical in terms of statistics) analysis about what could go wrong if the government were to free pricing of petroleum products. He mostly argues in favour of deregulation, and that is a view that I completely endorse.

One of the big fears about deregulation that he mentions is the fear that volatility in retail prices of petroleum products might increase, and he argues that this is a good thing and is much better than the government artificially hiding the prices and subjecting the junata to major price shocks once in a while. While I agree with him on this, I don’t think prices will change frequently in the first place.

While I was reading this article, I started thinking about the neighbourhood Sri Ganesh Fruit Juice (yeah there are a dozen of those in every neighbourhood in Bangalore) center. About how the guy keeps the price of orange juice constant throughout the year, despite the price and availability of oranges themselves fluctuating wildly across seasons. Yeah he might do minor adjustments such as changing the proportion of water but he can’t do too much of it since he needs to maintain quality.

The basic funda here is that customers want certainty. Every time they go to the shop for their fix of orange juice, they want certainty in the prices. Even if you are on an average cheaper, you will lose customers if your price is more volatile than your competitor’s. Of course there are occasions when you can’t help it and are forced to change your price – and on these occasions your competitors are also likely to do the same. But as far as possible, you try your best to decouple the price of orange juice from the price of orange which is pretty volatile.

Now I don’t know if the volatility in crude oil prices is more than the volatility in orange prices (it’s likely to be) but considering that oil companies are supposed to be more sophisticated than your neighbourhood juice shop guy, I would expect similar behaviour from them – of keeping retail prices of petroleum products as stable as they can. Of course they are likely to follow long-term trends but they are surely not going to pass on the short-time noise in prices to the customers.

So this fear of increase in volatility of retail prices is unfounded, assuming of course that the oil marketing companies are good businesspeople!

Shopping in New York

When I went shopping in New York on Friday I was reminded of this article by Tim Harford that the bofi had posted as part of a comment on one of my earlier posts. The basic insight in the article (which draws upon some widely cited research – I’ve read about it in several other places) is that too much choice may not be a good thing. That basically if presented with too much choice you are likely to just put NED rather than put effort into making the choice, and so it makes sense on behalf of the marketer to restrict choice.

So on Sunday evening, after having spent most of the day with a bunch of friends I know through an online group, and an hour or so with RG Mani, a very tired me walked into Macy’s, which claims to be the largest store in the world. I don’t dispute that claim – there are some six floors with each floor being the size of an average Big Bazaar. And there are clothes. And clothes. And shoes. And clothes. And more clothes.

Since I was trying to shop not only for myself, I ended up spending a considerable amount of time in the women’s section also. And the problem there was one of plenty. There was so much stuff to look at that it caused intense NED. I ended up just giving up on large sections of the store, and not even looking at even a sample of price tags there (yeah, I’m a cheap guy and was looking only for heavily discounted stuff). I won’t elaborate further on this “too much choice => NED” funda. Read the Harford article for more on that.

I don’t know what the strategy of the store is and whether they had deeply discounted stuff at all. The sample of clothes that I happened to check the price tags of were all extremely expensive. Perhaps the store did have some cheap stuff, but I don’t understand the policy of hiding it somewhere. Is the thinking that people on the lookout for cheap stuff are going to look more carefully and will hence find it? Which means some kind of “skimming” in terms of people’s attention spans? But the problem with this strategy is that by not displaying the cheap front up front, you may end up turning away a lot of people who look for cheap stuff!

Looking through all the huge floors of Macy’s caused me so much NED that when I saw an excellent looking reasonably priced Tommy Hilfiger sweater I didn’t even bother trying it. Maybe if I’d seen that sweater earlier I would’ve owned it now! So much that choice, and size, can do!

On Monday I went to this store called Century 21 near my office and had a more productive shopping experience. They also had both cheap and expensive stuff but they prominently advertised the cheap stuff with prominent “sale” signboards. Much more targeted, much more convenient for the cheap shopper, much more sales which means much more profits. Only thing I wonder is if this strategy of theirs turned away people looking for the higher margin expensive stuff..

Urban living and restaurants and liquidity

Last night I had dinner at Alfanoose, a small Mediterranean joint off Broadway. I had hummus and salad with pita bread, and had also brought along a falafel sandwich which is now sitting in my fridge and is likely to get consumed today for breakfast. Excellent stuff. Absolutely brilliant. And not expensive at all – ten bucks for the hummus and salad, and six for the sandwich. Considering that USD = 10 INR according to the Idli index, this is extremely reasonable, insane value for money.

I have been intending to write this post for ages, about how one of the best positive externalities of urban living is restaurants. When you are living in a desolate area, with not too many people around, there is no option but to cook your own food. Even if you live in a village ora small town, the number of people who are willing to eat out will be small, which means it makes little business sense for someone to open a restaurant there. You are likely to find a handful of them, but the lack of competition will mean that you can’t really trust quality.

There is a network effect in restaurants. Some people don’t eat anywhere but at home, and some don’t cook at home at all. However, there is the large middle ground of people whose consumption of restaurant food varies directly with quality and liquidity. And these two concepts are inter-related – the bigger the town is, the greater the required supply of restaurants which means more competition and thus higher quality. And higher quality leads to higher demand (more fence-sitters converted) and the virtuous cycle goes on (of course, population and the fact that some people don’t like to eat out limits the boundaries of the cycle).

Another thing is that the larger a town gets, the greater the liquidity of the food market in there, there is more variety. If you remember Bangalore in the 1980s, when I was growing up, there was one standard type of restaurant. Where you would get cheap idli and dosa and a few other standard snacks, and a few “north indian” items at meal times, and every time you wanted to eat out you had to go with one of these. And you would have noticed how with the growth in the restaurant market in the 90s you got more variety.

What makes cities such as London and New York such foodie havens is their size, and also that culturally people here are more inclined towards eating out than in other places such as India. This leads to insane liquidity in the market, and as I explained above that leads to more variety, and so you get more niche food. And when you have cities as large as New York or London, what you get is full-fledged liquid markets in cuisines that are everywhere else considered niche!

So because of liquidity in otherwise niche markets, in each cuisine you will find various kinds of restaurants. Like yesterday I had awesome hummus at this self-service place! While in a place like Bangalore to get any kind of hummus you’ll have to go to a fine dining place and spend a bomb.

Another thing I realized is that when liquidity is thin it usually occupies the top end – like how in Bangalore you get non-Indian stuff only in high end fine dining places. But I suppose I’ll write about that in detail some other day

Simplicity and improvisation

While writing my previous post on the film game, I was thinking about simplicity and improvisation. About how if you seek to improvise, in order to improvise well, you would rather choose a simple base. Like how the simplicity of film aata allows you to improvise so much and create so much fun. I was thinking about this in several contexts.

This concept first entered my mind back in class 11, when a mridangist classmate told me that for all music competitions, he would choose to play the aadi taaLa. His funda was that the simple and intuitive 8-beat cycle in this taaLa let his mind free of conforming to the base and allowed him to use all his energy in improvisation.

Thinking about it, though I have little domain knowledge, I would consider it very unlikely that a Carnatic performer would choose a vakra raaga for the “main piece” of a concert. The main piece requires one to do extensive alaap and then taaLa and requires a lot of improvisation and creative thinking on the part of the performer. Now, a vakra raaga (one where there are strict rules governing the order to notes) would impose a lot of constraints on the performer and he would be spending a large part of his energy just keeping track of the raaga and making sure he isn’t straying from the strict scales.

Starting from a simple easy base allows you to do that much more. It gives you that many more degrees of freedom to experiment, that many more directions to take your product in. If you build a sundae with vanilla ice cream, you can do pretty much what you want with it. However, if you use butterscotch, you will need to make sure that every additive blends in well with the butterscotch flavour, thus constraining your choices.

When the base for your innovation is itself fairly complicated, it leaves you with little room to manouever, and I’m afraid this is what occasionally happens when you are into research. You specialize so much and start working on such a narrow field that you will be forced to build upon already existing work in the field, which is already at a high level of sophistication. This leaves you with little choice in terms of further work, and you end up publishing “delta papers”.

Similarly in the management context, if you start off by using something complicated as your “base framework”, there aren’t too many things you can put on top of it, and that constrains the possibilities. There is even the chance that you might miss out on the most optimal solution to the problem because your base framework didn’t allow you to pursue that direction.

It is all good to borrow. It is all good to not reinvent the wheel. It is all good to stand on the shoulders of giants. However, make sure you pick your bases carefully, and not start on complicated ground. You will produce your best work when you give yourself the maximum choice.

Shoe Shopping

Ok this is a typical management guru/corporate whore kind of post.

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Last weekend I needed to buy a new pair of shoes. My last pair of black formal shoes had broken a couple of days earlier and I urgently needed a new pair if I were to wear something decent to office on Monday. It was late on Saturday night when I went shoe shopping.

So I walk into this store in Jayanagar and ask one of the sales reps there for a pair of black formal shoes. He asks me my size and immediately runs inside to fetch a pair. While I’m trying out that pair, he runs in and fetches two more. He makes me walk wearing a different shoe on each foot. He brings shoes of all kinds, of varying prices, of varying sizes, of different styles. Before I know it, there are a dozen pairs in front of me, and I’m having a hard time deciding which to pick.

The choice left me utterly confused and I walked out without buying anything. It was impossible for my head to come up with a tractable algorithm to decide which of those shoes to buy. I continued on my walk, stopping only when I reached another shoe shop, with the same name and half a kilometre away.

The salesman here seemed more experienced. Before he went in, he asked me a few questions about what i wanted. He asked about my willingness to pay, colour preferences, style preferences, and even asked me to point out the shoe on display which looked closest to my last pair. He made me take off my floaters and studies carefully the shape of my foot. Even after he goes in, he pops out a couple of times asking me more questions. And finally emerges with one pair.

That pair fit wonderfully! It seemed to satisfy all the constraints that I’d mentioned, and was extremely reasonably priced. And I didn’t need to think twice before buying it.

This is what good marketing is all about. It is about understanding the customer’s needs properly before trying to sell him something. To understand what he wants and give him just that rather than simply flooding him with choices which will only end up confusing him. Giving him more choices makes him do more work than he wants to, and he will simply escape.

If you are in a sales/marketing role in your company, you would do well to spend that extra hour in trying to exactly understand what your customer wants, rather than simply trying to feed him your packaged solutions. I’m sure the extra effort will be more than worth it.

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People, I need honest feedback about how I sound when i try to write like a management guru. Hope I’ m global enough!