Archive for November, 2011

The Tug-of-War Between Different Pricing Models

Thursday, November 24th, 2011

Marketers are familiar with cost-plus and value-based as two most frequently used pricing models for products and services.  Under cost-plus pricing, all input costs are totalled up and a markup is applied on top to arrive at the selling price. On the other hand, value-based pricing sets the selling price based on brand, competitor prices, perceived value of pain solved or gain created, and many other factors that are not linked to input costs.

Any given item in the market will have a price that is either based on cost-plus or value-based pricing models. This makes a direct comparison of the two prices impossible. However, most people intuitively know that value-based prices are often much higher than costs. The following price of a full English breakfast in a typical London five star hotel confirms this intuition beyond any doubt.


This example has been taken from Hotel Babylon, a book written by Imogen Edwards-Jones and Anonymous about the luxury hotel industry in London.

At the same time, most people – including us – tend to believe that cost-plus and value-based prices for a given brand will be directionally identical. In other words, for two products A and B from the same manufacturer, if it costs more to produce B, we’d be inclined to believe that B should have a higher selling price than A, no matter whether the manufacturer used the cost-plus or value-based pricing model.

We recently came across an example which went counter to this notion.

Panasonic recently launched a new model of desk phone called KX-TSC62SX. Readers would be aware that feature-rich handsets generally need batteries and a charger to charge the batteries, as a result of which they need to be plugged in to the mains at all times. Unlike its older brethren, the KX-TSC62SX doesn’t use any batteries.


No batteries means no charger, therefore KX-TSC62SX has a lighter bill of material and a lower cost as compared to previous models of Panasonic phones that require batteries. At the same time, lack of batteries means no need to plug a KX-TSC62SX to the mains. As a result, KX-TSC62SX alleviates the pains inherent with conventional phones of having to cart around one more wire and be tethered to a power socket.

Therefore, cost-plus pricing dictates a lower selling price, whereas value-based pricing justifies a higher selling price, for the same product. There’s the tug-of-wars between different pricing models.

Strange Yet Familiar Results In Google Images Search!

Thursday, November 17th, 2011

Google Images Results for KX-TSC62SX

I recently bought the latest Panasonic KX-TSC62SX corded telephone. In a recent blog post on pricing models, I was planning to use this phone to illustrate a certain point. While I could have always photographed the handset at home, I thought it might be easier to source a picture via Google Images.

When I went there and searched, I couldn’t find a single picture of this phone for as long as I scrolled. Since Google Images uses jQuery Infinite Scroll, you can never be sure how long it’d take to reach the end of the page.

On the other hand, I was shocked to find my own mug shot appearing as the first image!

gisr02When I clicked on the image, it took me to Twitter and displayed my recent tweet about this phone. Google Images must have treated the text of my tweet – including the phone’s model number – as tags for my Twitter profile picture, which is how it might have decided to display my picture in its results (Full Disclosure: Apart from being a proud owner of this phone, I’ve no relationship with it or its manufacturer).

Unlike TinEye which searches for images using images, I’m aware that Google Images searches for images based on textual keyword tags. To that extent, I wouldn’t have been surprised to find my picture appearing somewhere deep down in the search engine results page. But it was surely strange – yet familiar – to see it at the #1 position!

Jumping On The Omnichannel Bandwagon – Part 3

Thursday, November 10th, 2011

In Part-1 of this blog post, we’d described multichannel banking. In Part-2, we’d introduced the concept of omnichannel retailing. In this concluding part, we’ll explain what omnichannel behavior could mean in the context of retail banking and suggest ways by which banks could jump on to the omnichannel bandwagon even if they didn’t / couldn’t fix shortcomings in their current multichannel offerings.

Research is showing increasing customer tendency to hop channels even to complete a single transaction. This forms the bedrock of omnichannel banking and can be attributed to the perception by customers that different channels perform different steps of the same transaction with differing levels of convenience, security, speed and cost. Let me cite two examples from my personal experience:

  1. Account Opening: I prefer to complete a form online. But, when it comes to submitting supporting documents, I find it much easier to snail-mail them to the bank instead of scanning several pages and uploading them electronically.
  2. Bill Payment: While I don’t mind online bill payment, I can’t stand e-statements and insist on receiving printed bills by post. Click here and here to find out why.

We want checkbooks!

The recent decision by INGDirect USA to introduce checkbooks shows that omnichannel behavior is not my personal eccentricity: Although they opened accounts in an Internet-only bank that doesn’t have any physical presence, the bank’s customers want to write paper checks to make everyday payments instead of  jumping several hoops to put through electronic payments.

To make the leap to omnichannel banking, we recommend that banks identify the channel preferences of the majority of their customers for each step of every key transaction. They should then direct their investments to ensure that each channel delivers the best customer experience for that step even if it doesn’t do so well on the other steps. This approach will guarantee the best customer experience for the majority of customers even if ticks off those outliers among customers who want to do everything on an iPad or at a branch.

To see how this approach would play itself out, let’s take the example of a bank which currently makes available product information on its Internet Banking and Mobile Banking channels but lacks support for completing the account opening process on its remote channels. Such a bank has the following choices:

To support 100% multichannel support for, say, its account opening process, the bank would need to establish realtime integration between its existing internal account opening systems and third-party identity and address verification services. A bank that only provides product information on its remote channels and lacks this level of sophisticated integration has the following two choices:

  • Option 1 (Multichannel support): Invest in technology and resources to establish realtime integration between its internal account opening system and third-party identity and address verification services. Eliminate friction from the current web/mobile channels. Deliver 100% account opening functionality on online / mobile channels.
  • Option 2 (Omnichannel support): Freeze investment in the online and mobile channels. Let the prospective customer research and make a shortlist of products on Internet / Mobile Banking and, as at present, request her to visit the branch to complete the account opening process. Use clickstream analysis and other technologies on its remote channels to ensure that, when she walks into the branch to complete the process, the branch staff is able to progress the offline transaction from where she left the online one, instead of wasting her time by telling her to start the process from Step One.

Although we have nothing against the first option, we believe that it’s neither necessary nor practical under today’s market conditions. If banks won’t or can’t provide fully fledged multichannel support for whatever reason, the second option gives them a headstart in meeting changing expectations of a majority of their customers who prefer to open accounts in the branch even if they demand online research capabilities from their banks. According to CEB Financial Services Customer Experience Survey cited in this TowerGroup report, this segment constitutes as much as 62% of customers in Mexico followed closely by 61% in the USA.

A majority of customers globally want to research online but buy at a branch

A majority of customers want to buy at a branch - globally

We conclude this three part series with this recent Finextra article that describes how two banks, Dupaco Credit Union in the USA and DBS in Singapore, are using state-of-the-art mobile and social media technologies to drive more customers to their, ahem, branches! Kudos to these two banks for taking this concrete step towards omnichannel banking!

Fortune GLOBAL 500 And Indian IT Companies

Thursday, November 3rd, 2011

When will the Indian IT industry contribute its first member to this list?

In its 15 Aug 2011 issue, FORTUNE magazine acknowledged that it “erroneously omitted Chrysler Group from the GLOBAL 500 list” published a fortnight earlier. It goes on to regret this error.

Sounds more like a blunder to me.

Apart from this blemish, this year’s FORTUNE GLOBAL 500 issue is a lot better than the lacklustre one of last year’s. The GLOBAL 500 list is preceded by a short leader article that explains its salient features. The country-wise ranking of the largest corporations is back. The infographic accompanying the “The Best New Cities for Business” article is brilliant (Ahmedabad and Gurgaon are the two entries from India). Despite the missing editorial and the industry-wise ranking, this issue is worth archiving unlike the last year’s.

Wal-Mart and Wistron respectively define the top and bottom of this year’s list.

(US$ Billion)
(US$ Billion)
1 Wal-Mart Stores 421.85 16.39
500 Wistron 19.54 0.38

Way back in 2007, I’d wondered which would be the first Indian IT company to enter this fabled list. At the time, my prediction was TCS in 2015.

Now, this is what I get when I use the last two years’ figures to update my model and extrapolate it until 2020 (download this model at item # 17 here).


As you can see,

  1. TCS will now enter the Fortune GLOBAL 500 in 2017 and not 2015 as predicted earlier.
  2. Newcomer COGNIZANT can expect to gain membership to this club in 2019.
  3. WIPRO and INFOSYS are unlikely to make it until 2020, which is our model’s last year.

These predictions assume that all year-on-year revenue growth in the future will not be significantly higher than present rates. Unless any of these companies does a big ticket acquisition and grows revenues inorganically, this assumption is likely to remain valid.

With its trailblazing growth during the last few years, Cognizant enters this list. Because of tthe internal fraud in SATYAM that came to light in 2009, its absence from this list shouldn’t come as a surprise.

I initially attributed TCS’s delayed entry (from 2015 to 2017) into this list to the slowdown it suffered during the Great Recession. However, the bad times of the past couple of years didn’t leave GLOBAL 500 corporations unscathed and therefore can’t possibly explain this postponement. If there are any financial analysts amongst readers, I leave this to them to figure this one out and enlighten the rest of us with their comments below.