Posted by: alok | November 20, 2006

Irrational Exuberance..

Mr. Greenspan coined this phrase to indicate the irrationality of investors in the overvalued stock market. I find this phrase more apt in our day-to-day purchases that we make rather than the stock market.

Recently, went to a Fabmal (for the uninformed, it is a retail chain where you can find everything ‘ethnic-Indian’. Patrons of this store say goods out there are hand-crafted). I was browsing the store with no intent to purchase anything in particular. I chanced upon a colorful candle – liked its packing, and scanned its price – and to my utter surprise – it was valued at Rs 95…!!! Its not that its too expensive for a software professional (or rather any middleclass Indian urban), but the fact that Rs. 95 for something whose raw material cost wouldn’t be more than Rs. 1 or 2, manufacturing and packing cost another couple of bucks.. i.e. total cost of 5 bucks at the max. I went to the to store manager (I assume he was the Store manager, as he was more elegantly (read lavishly) dressed than others) and asked its price – here’s the conversation that follows:

Store Manager (looked at the tag and said): Its written here, Rs. 95 only sir. We have tagged the price of all the items in the store for the convenience of our valued customers like you”.

Wow.. what a nice and courteous statement…!!

Me: “I have read the price tag, but I thought it was a typo error.”
Store Manager: (just smiles): “You have a nice sense of humour”

Me: “Thanks for the compliment, but I was thinking is it rightly priced? Its manufacturing cost wouldn’t be more than 5 bucks, add to it your overheads, but still its nowhere close to 95. Are you doing justice to the customer or are you passing out the cost to the labour who made it?”

Hearing this conversation, couple of “valued customers” started staring at me, as if I have done some crime by asking the price rational in a swanky store in a shopping mall. Manager noticing the displeasure in the eyes of his “valued customers” takes me to a side and the conversation follows:

Manager (justifying the price): We have to factor in the cost of the sales, marketing, store rentals, and still make some profit.
Me: I understand that, but do you think it costs 75-80 bucks for all this? I appreciate your packaging of the material, your store ambience, courteous employees – even if you factor in all this, I can’t understand the rational for a premium of over 1700%.

Manager (Irritated by now): (The word ‘Sir’ goes down the drain) If you find it expensive, then leave it here. There are ‘kirana’ stores down the street, where you can get candles for 10-15 bucks, purchase it from there.

The “valued customer” is no more valuable..!!

My critics would argue, the store owners have to pay for the retail space, which itself is very high. I think – this is “Irrational Exuberance” – pay high salaries to professionals, raise the rental cost, raise the cost of goods in the name of exclusivity & branding, lower the interest rate, and give out personal loans and credit cards…!!!

After all this, ofcourse I was in no mood to talk further, or purchase anything, so promptly left the store. This was the first incident where I tried to implement “Jago Grahak” campaign.

On the way-back I was wondering:

  • How much money I spend on the so-called ‘exclusivity’ (and mind you – goods purchased from a Fabmal/Archies/Westside etc. is no more an exclusive item in urban India – you find them in every house)
  • How much money I spend in the name of branding (A coke with a manufacturing cost of around 20p is priced at Rs. 10 in stores and at Rs. 50 in multiplexes, a branded cotton shirt is priced at Rs. 2000, while the cost of cotton and tailoring won’t be more than 200)

And contrast all this with –

  • How much money I save by bargaining for a couple of bucks with a rickshaw walla or a street-side vegetable seller.
  • How much money I save by cribbing about the state of affairs, when a beggar asks for a penny
  • How much money I save by not contributing anything to the upliftment of a needy.

The irony is – I am writting this post on a Dell Latitude laptop (Rs. 85,000), wearing Woodland shoes (Rs. 2100), a Lewis jeans (Rs. 1900), a Timex watch (Rs. 2500), a John Miller shirt (Rs. 1100), after having a lunch at Pizzahut, listening to music on a Creative Zen Nano ($100), with a Samsung mobile (Rs. 7000) in my pocket….!!!

This is what a typical Indian Urban Male is… spend thousands on branded goods, and never give away a penny to a needy.

Am I not “Penny wise – Pound foolish”?

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Responses

  1. Alok,
    Just wait for a couple of years. The idea of in-house brands/private labels will arrive in India big time and consumers will become more informed. Afterall there is only a marginal difference in the quality so why pay such a huge premium?? After conjoint fundea, i’ve somehow decide the upper limit for every item and do not spend a rupee above that limit..Well informed consumer errr!!

  2. Alok,

    I too have similar feelings. While we dont hesitate to pay ‘low prices’ to big bazaars, fab mall et all…we find it difficult to give money to the poor..god knows how they survive…

    But as Pradeep says above…in the long run markets will be efficient…surely there will be a smart gujju/maru with a plan who can offer a mix of low price and good quality…

    Until that time…we have to just wait…

  3. Your blogpost would be more interesting if you would also factor in the marketing, sales, and a decent profit margin into your costs. How much does a retail space cost in these urban malls? How can they afford to pay so much rental? A coke can cost 10- 20 paisa to manufacture, but who drinks the nimbo pani for 50p or 1Rs that so many gade wale sell? (Not me.)

    But I have say, that I always look for alternative cheaper options. Not all my clothes in the wardrobe are labelled items. Why the hell should they be, if I can get better quality by getting a cut-piece cloth for 300 Rs and get a perfect fit for 180-200 Rs tailoring? In fact for every top quality designer label that I buy, I get 2-3 cheaper ones, and 5-6 premium stichted ones.

    Either you have not honestly informed about your wardrobe, or you have foolishly never tried tailored clothing from the local tailor.

  4. Alok,

    Incidentally our first name match, but not our views on the topic 🙂 The point that the post tries to make is the following:

    The marginal improvement in quality for Louis Phillipe shirt is not at par with additional money that you have to shelve out over an unbranded Rs. 400 alternative.

    Why I as a consumer should bear the Crores paid to Sharukh’s & Tendulkar’s for appearing in a coke ad – i would rather prefer a cartoon character as the brand ambassdor, who will work for free… (If you remember the brand ambassdor of 7 up, & Amul .. you will know what i mean). I guess its an interesting topic, on which i will write a dedicated post.

    Thirdly, rather the most importantly, we as consumers bargain for pennies with a rickshaw-wala, or a street side vegetable vendor, and ironically, never even ask the price rationale of any product in a shopping mall….. (either because we are too shy to do so, or it is considered uncultured….)!!!

    And finally, the post does not try to make any conjectures about the branded or the unbranded items in my wardrobe, rather it tries to portray an average Indian Urban… who on one hand typically will have branded expensive clothings, flashy gizmos, but not a penny to spare for the needy…!

  5. Hey got to know about your blog recently and the thoughts put in this artcile hooked me to this blog. Appreciate your thoughts and in fact our views coincide on this topic. If I am not wrong Vaibhav and Pradeep who commented above are my friends in B’lore 🙂

  6. Abhiraj,
    Thanks for the compliment.

    If you are working in Covansys… yes Pradeep and Vaibhav would be your friends in B’lore, or atleast colleagues…!

  7. Sri Sri Alok,

    You write damn well, bhai…and the crispness of your thoughts continues to be as impressive as ever. The great debates we had at the ISB – some silly, some wise but all, of considerable value-add to those fortunate to be near the great gyaani that was you 🙂 – continue to be so very fresh in memory.

    Keep on writing, mate. Wise up the world.

    Ol’ friend,
    Vineeth.


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