Do, die or cheat


Honesty is the best policy. When there is money in it – Mark Twain

Last week saw two marquee financial giants ending up with the label ‘unfair’.  Mastercard is in the dock over card charges that it had added on to unsuspecting shoppers. Wells-Fargo, the big bank has taken a real beating in valuation and reputation for palming of products and services its customers did not ask for. I wish to leave details to the to the gurus to dissect and comment upon, it is time to reflect upon the issue of ‘corporate governance’ and why the best in the business fall flat on this critical aspect.

Recently I went to a bank looking for a safe deposit locker. Branch staff informed me that they have lockers to rent out, but…they wanted me to buy an insurance policy from their branch. Having seen this from a close quarter (I worked in an insurance company), I played along and asked for the details. Branch staff recommended a high cost, high- risk insurance policy (ULIP) which did not take into account my age or needs. Why?

Targets. It is the pressure to deliver the numbers – do, die or cheat. When it comes to survival (failure not accepted), objective of sales staff is only one – find a sucker. More skilled you are at the game higher are the rewards. Growth, bonuses, increments follow along with the ultimate carrot – international trip for the top performers. There is a linearity at play in this moral degradation. Better the destination, bigger the rip-off. European destination will lower the scruples of sales team more than a trip to good old Bangkok!

Toshiba, the Japanese technology giant, had targets (called Challenges) which had to be met one way or the other. Challenges were tough to say the least. Quarterly sales targets that were double that of last quarter were rolled-out few days before the close of the quarter. To survive, the way out was simple – cook up the numbers. Which they did, until the truth unraveled last year revealing $1.2 billion of overstated profits.

Two years before that at another Japanese firm Olympus, the same story played out. Pressure to deliver outstanding performance while the business prospects were bad tempted the honchos at these companies to opt for fraud than accept failure. As its one time President said, “When the main business is struggling, we need to earn through zaitech (financial engineering)”

Profit, sales growth, market leadership…these words echo soundly in boardroom of every corporate. And rightly so. After all, capitalism is about creating value for the risk taker, triumph of human endeavor and stock markets correlate numbers with abilities. Until the truth unravels.

One of the key tenets of capitalism is ‘failure’. Bankruptcy laws and asset reconstruction facilities help companies tied over difficult times. Many corporations rose like Phoenix from bankruptcy. That is until greed triumphs over reason. In most firms, seeds of greed at sown at the top. The way the king is, so are the kings men. Corporate governance and fair practices codes are mere eyewash and publicity stunts until they become work rules. Who writes the rules and what are they?

Work rules boil down to employee reward system. “Only top performers are recognized and rewarded” is the message that gets around, will result in the attendant behavior. What is top performance? Only numbers? Take the case of my branch manager. If he had advised me not to take an insurance policy, as it is not in my interest, would it count as top performance or non-performance? In a corporate hospital, a doctor who does not prescribe needless antibiotic and expensive tests will be a top doctor or a liability? Answer to these and questions such as these will clean up capitalism and customer will benefit.

Do not get me wrong. Targets are essential for organisations to thrive and grow. Targets need to emerge out of the goals that the organization needs to set out to serve and should not end up being heartless numbers. Morality, not profit, should be the goal of the organization and its honchos.

Who will tie the morality bell around the capitalist cat?



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Priceless or less price


“A cynic is a man who knows the price of everything, and the value of nothing” – Oscar Wilde

Reliance Jio’s datagiri has captured the imagination of everyone. Impressed by its free voice and cheap data consumers are thronging to Reliance outlets to get their share of the new freebie in town. As is the norm, no one cared to read the fine print – there are quite a few of them – to get on to the free (for 3 months) and cheap network.

Contrast this with the anticipated launch of Apple’s last flagship phone – iPhone7. Long queues of people standing all night outside Apple stores to buy the latest iPhone is not uncommon. Apple’s phones are atrociously expensive. Cost of each one is equal to per capita income of millions of people across the world.

Here is the surprise. In a space of few days people are queuing up to buy the cheapest and the also the most expensive mobile phone solutions in the world! It is not common for Indians to buy the latest iPhone at a premium in the grey market. But the same Indians are salivating at the prospect of cheap data plans from Jio! Price is a great weapon in the armor of marketing men and it is plays with the psychology of consumers. Who does it work?

Sale! Sale! Sale! Whoever didn’t get caught out by these words splashed across billboards and media ads? We are happy with a 50% that we got in the sale (what do these outlets do rest of the days?!). It gives us a psychological high that we have used our intelligence and saved money on a purchase. Did we use our intelligence or justified our conscience of buying stuff we may not really need? Just think.

How do we get fooled with discounts? Just look at these two image below:


Product is the same (Philips), vendor is the same (Amazon), final sale price is the same (Rs.2,890). You will most probably fall for the offer in the right side image. Why? Look at the discount percentage – 9% vs 17%. We all like more discount don’t we? How can the discount be higher in one than the other when the final price is the same? Just look at the MRP. On the left it is Rs.3,190 and the on the right it is Rs.3,490. MRP has been increased to give a higher discount! We are greedy (mistaken to be smart) and grab the higher discount ignoring the fact which is the MRP. That’s the psychology of pricing at work!

A lady who had a souvenirs shop in a tourist place before going on a short vacation, instructed her staff to reduce the price of some of the items as they were not selling fast enough. When she returned all these items were sold out! Surprised she checked and found that the staff mistook her instructions and increased the price of the souvenirs. Customers (tourists) mistook the higher price products to be of better quality and purchased them! Another example of psychological power of pricing.

A famous marketing guru shared his observation in a Chinese factory that makes shirts for different brands. On a table were stacks of shirts made in the factory. He observed one employee stitch a premium brand label to one stack while another employee stitched a bargain brand label to another stack of shirts! Price is linked to the brand and not the product. Bata got famous through its product pricing. Starbucks keeps raising its price while the coffee beans prices are falling! A cheap Rolls Royce would lose its charm immediately while a pricey mobile from a bargain brand is viewed with suspicion. When you use a product, you state its price and your status!

There are laws (like MRTP in India) that protect competition from predatory pricing. However law is weak when it comes to tackling supernormal profits pricing practices. Pharma companies are among the guiltiest in the lot. Martin Sherkli of Turing Pharmaceuticals raised the price of a life-saving drug price from $13.50 to $750 as he felt obliged to give profits to his stake holders. Recent controversy over Epipen from Mylan Pharma also falls in the same category.

Information asymmetry (what the seller knows but the buyer does not know) is what causes dissatisfaction in consumers and provides the manufacturer the pricing power. When buying don’t look the price but the value of the product in our life. As always we need to exercise caution while buying. If we need it, we should buy provided we can afford it. Period. Price is an exchange of money against goods but it should not be an exchange of our intelligence for a product we may not need.

Caveat Emptor – buyer be beware!





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