Reverse Bata Pricing

We all know about Bata pricing

Marketers call it ‘Bata Pricing’, paying homage to the company that invented it and refined it to a fine art… Introduced nearly three decades ago when shoe-major Bata priced its shelf-star ‘Hawai’ chappals at Rs 39.99, this marketing mantra has outlived all the rules of the retail game except Kotler’s 4Ps. And is still going strong.

There are several arguments to justify the use of Bata Pricing.  One theory is that customers believe that an odd-price is indicative of a low or fair price.  Another popular theory is that a price of 99.99 is viewed as less than 100 – and is therefore more attractive.

But what about the opposite pricing strategy where a brand takes prices beyond a psychological threshold – and thereby sets the stage for future price increases without any major customer resistance.

Like the case of the Delhi-Gurgaon expressway which increased prices from Rs 20 to 21 earlier this month – causing immense customer dis-satisfaction – not because of the price increase, but because of the coinage issues. You can almost visualise the relief on customers’ faces when the price eventually moves to Rs 30!

The difference between Rs 99 and 101 is negligible – but the perception gap and the consequent expectations may be significant.  Is this an under-exploited, or under-documented pricing strategy?

ymMBA: Dog of Dance

Series of posts titled “Your movie MBA”, where we’re using famous hindi movie lines to make management gyan more approachable. Today’s theme-customer segmentation! The source material is illegal phone-taps, so reader discretion advised.

Follows this base post. And oh! This is fictionalized.

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In the wake of 2010’s 2G scandal in India, newspaper offices have become used to receiving strange packets with USB memory sticks full of illicitly recorded telephone conversation. One such package arrived at our doorstep yesterday, marked simply “Gabriel’s Dogs, 1994“. Our curiosity piqued, we plugged in the USB drive to hear the inner workings of the IT industry in its infancy. The year was 1994, and this was a recording of a conversation between Virendra, VipInTa Technologies’ founder, and Haema, the company’s relationship manager with Gabriel Electric. Haema, as readers will recall, later became (in)famous as a corporate lobbyist and her other phone recordings have already been made public. It appears that Haema’s calls were being tapped much earlier in her career as well. This was one of the recordings. The uncut transcript is below.

Haema: Veeru, this is me. I know it’s late…sorry…but I need to talk with you urgently ya!

Virendra: Haan bol! Did you get any sleep? Those crazy guys at Gabriel have made me completely sleepless. I don’t know why we have to do this renegotiation tamasha every year. Why don’t they bloody ask for our first-borns and right arm as well? Buggers!

Haema: No ya! I didn’t get much sleep either. I was working with Balu on the financials. If we give Gabriel’s guys any more discount, we will make no money on the deal at all. Balu is furious, and I am ready to give up now. It’s your company, ya!, you tell me what you want to do!

Virendra: Arrey…we gave them a discount last year as well. They keep coming back every year to arm-twist. Tu aisa kar, you tell them that you’re not able to reach me. Let them give us some more time.

Haema: What are you saying Veeru? This is our largest client, and they are negotiating with all the other desi companies. I can’t just go and tell them I can’t reach you. Tell something else…should I just give the discount, and we will try to be better prepared next year?

Virendra: Basanti..<audio garbled>

Haema: Hellow?! What did you say?

Virendra: <muffled audio> Basa…ton ke saam…<muffled audio>

Haema: Can you repeat? Your voice is cutting off…Hellow?! Should I call back?

Virendra: Basanti, in kutton ke saamne mat naachna! <translated: Don’t dance for these dogs>

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<Editor’s note> Customer segmentation is a very important part of a company’s strategy. Not all clients are alike, and some clients are not worth having. VipInTa had run into a very big problem- their biggest customer, Gabriel Electric, was now a problem client. Gabriel’s men routinely came down to India to ask for discounts, and the relationship had become toxic. Veeru had to decide whether to continue to give discount to the single client that gave them 40% of revenues, or to walk away and take their chances with other more profitable clients. They chose to walk away, and the rest is history. The company still doesn’t do any business with Gabriel’s men, but happens to make the most profits in the industry. Those who danced for Gabriel’s negotiators have had to sell their companies for a deep discount. (Non-fictionalized version of the story here at #19). (Non-fictionalized reference to a company that likes dancing for Gabriel is here. They sold the company in early 2011, at a fraction of the valuation of the other companies in their industry. Cheap clients make poor business partners!).

Not all customers are alike. Learn to pick well. That’s your bollywood line for the day.

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Basanti, in kutton ke saamne mat nachna! Can there be a more iconic bollywood line? For those who slept through the 1970s, the line is from Sholay, and involved Hema Malini (as Basanti) and Dharmendra’s character-Veeru. Veeru is strapped to a pole, and the arch-villain Gabbar’s henchmen have asked Basanti to dance on shards of broker glass as a life-line to save her boyfriend Veeru. Incensed, Veeru is asking Basanti not to dance. She does. He lives. Happy Ending, bollywood ishtyle.

Old and New Product Life Cycles

Fascinating interview with Deepak Puri (MD, Moser Baer) in yesterday’s edition of the Economic Times.  A couple of really interesting examples of old and new PLC management in there.

On optical discs:

“PCs and other devices are still shipping with CD drives. The installed base is large, though the demise is happening. CD is declining 5-8 % every year, DVD (sales) is flat. Bluray is rising fast. Discs will morph into something else. Volumes may come down due to better disc capacities. CD and DVD will have a long tail life and Moser Baer being the lowest cost producer will last till the end. I foresee 7-10 years’ life in optical disc space,” says Mr Puri.

This is a classic lesson in managing a slow dying product (in an old-PLC category).  As demand decreases, high-cost producers will be forced out of the market and business shifts rapidly towards the lowest cost producer.  Eventually, there are only a couple of suppliers left.  Given that optical discs will be around for some more time – given the large installed base – the last supplier left in the industry can make supernormal profits.  Since the product category would still be in decline, it’s pretty unlikely that another competitor would choose to invest in it.  Gold mine!

On the entertainment business (VCDs/DVDs):

“We don’t have resources to go across the country (to tackle piracy). We are looking at certain high piracy areas and trying to tackle the problem. We are now giving five movies compressed on one DVD. We are telling the pirate: when a legal movie is selling for Rs 35, you have to sell below that to make money and your margin is shrinking. We told people: why don’t you start selling legitimate movie, no one will run after you. Many of them have changed.”

It’s something that we had talked about in this blog sometime back.  New PLC management demands rapid proliferation of distribution channels to capitalise on the hype cycle.   Instead of cribbing about pirates, Moser Baer is making it attractive for them to go legit.  Now, if only Hollywood understood!

Ouch!

Pricing in the digital age has become a seriously complex subject.  The absence of a physical check before a transaction means that a pricing error can snowball into a disaster pretty quickly.  One example – 6pm.com recently lost $ 1.6 Mn during the course of a six hour pricing error.   This is what happened

Hey everyone – As many of you may know (and I’m sure a lot of you do not), 6pm.com is our sister site.  6pm.com is where brandaholics go for their guilt free daily fix of the brands they crave.  Every day, the site highlights discounts on products ranging up to 70% off.  Well, this morning, we made a big mistake in our pricing engine that capped everything on the site at $49.95.  The mistake started at midnight and went until around 6:00am pst.  When we figured out the mistake was happening, we had to shut down the site for a bit until we got the pricing problem fixed.

While we’re sure this was a great deal for customers, it was inadvertent, and we took a big loss (over $1.6 million – ouch) selling so many items so far under cost.  However, it was our mistake.  We will be honoring all purchases that took place on 6pm.com during our mess up.  We apologize to anyone that was confused and/or frustrated during out little hiccup and thank you all for being such great customers.  We hope you continue to Shop. Save. Smile. at 6pm.com.

Nice press release – done in a way that makes the best of a bad situation.  However, another company could have gone bust with a mistake like this.  Could one prevent this. Perhaps.  Many companies build systemic alerts linked to abnormal sales volumes.  Of course, this happened between midnight and 6 am – so an offshore monitoring centre could probably have spotted it 🙂