## Monday, April 6, 2009

### The true worth of a product

Another trivial topic. More of a passing thought actually.

This morning while walking to office I see the shoes of a man walking in front of me and I think how much is this shoe worth of, I mean the correct appropriate worth of this shoe.

Take the case of the shoe manufacturing company. The company after having produced the shoe, decides on its price. Consider yourself to be the guy entrusted with the responsibility of determining the price of this shoe. What do you do? I’ll break it into components like the raw material, the number of sections the shoe undergoes in the factory, number of people involved with its production etc. Lets say the the raw materials cost 50 bucks. Lets say 10 people worked on it and each worked 1 hr and going through their wages I can know the money equivalent to their worth and say its 100 bucks. Now the company invested money in the heavy machines it installed for the purpose so the maintenance and cost of those machines has also to be accounted for so lets say the cost of a machine is some XYZ and its lifetime is say 10 yrs and likewise I can determine how many shoes it can produce in its lifetime. Based on that one can know the cost of running that machine per shoe manufactured and similarly do the math for all the machines involved. Lets say its 50 bucks. So now the bare minimum price that I can charge on the shoe is 200 bucks. Its not over yet.

The company does have other sections also, like finance, marketing, sales etc. The cost of those also needs to be accounted for. So now I’ll calculate how much does a sales guy, a marketing guy, a finance guy spends on a pair of shoe on an average. For that I will find out the total number of shoes I produce in a month and divide it with the guy’s monthly salary(please see the last para) or I can also find the per day salary of the sales guy and see how many shoes I produce in a day etc etc. The thing is I can know how much I am spending on a sales guy, on a marketing guy etc on a per shoe basis and say it all adds up to 50 bucks. So the shoe is worth 250 bucks. The shoe can be sold at 250 without incurring any loss.

Now comes the profit part. The CEO started the company to earn some money, right? Others who joined also had the same in mind. The profit margin is a big issue. How much profit should they derive? It shouldn’t be too high or else the shoe price will be out of the target customer’s reach and it shouldn’t be too low also because you & your family have to survive on it. The profit should be optimum. One has to determine how much profit should a sales guy derive, how much for a marketing etc and like wise for every employee. The profits will be shared according to the hierarchy and in that respect the CEO is expected to take a lion’s share. It shouldn’t be hard because after all, the shoe business was his idea and it is normal that there is a fraction of shoe price that a customer pays should go to the CEO for his idea. You can see, arriving at a profit margin must be a tough task and I don’t know but the current market situation must also play a role in it. So after a long hard day’s work the final price of the shoe is determined at say 350 bucks. The company marks it as the Maximum Retail Price (MRP) i.e the product is not worth more than this price.

So I guess this is how one determined the value of a product. But then again, if it’s the most appropriate price, why do people still bargain? So, isn’t bargaining signify that you completely reject all the price determining upheaval task that the company performs. Isn’t it like all those sessions about manufacturing cost, profit-loss margin, etc useless. Isn’t it like questioning a company’s hard work on the product’s price-tag.

The problem becomes grave when the same product is available in many price tags. Say for example if the vendor makes a profit of 20 bucks per shoe sold(he wouldn't disclose it), on the case of customer bargaining for a better price, some vendors may settle for 15 bucks profit and sell the shoe in 345, some may sell it in 340 and some in 335. It doesn’t stop here. The customer is all confused now. He buys it in 345 and thinks it’s a good price but next day his neighbor gets it in 340. In such cases the customer can even question the 340 being the right price because the maximum is 350, the minimum can be anything that’s less than 350. We as customer cannot know the true worth of a product, can we?

I think I have a solution for this. What if, the company redo its math, make some appropriate changes and come up with a Minimum Retail Price. What if every product sold is sold under Minimum Retail Price. This leaves the bargaining out of context because now the customer knows he cannot pay anything less than this price unless he wants to murder the company’s minimum profit. The customer always wants the best price for a product, the true worth the product carries. Minimum RP is the answer. A maximum quoted price leaves so many questions to one’s assumption which only adds to one’s confusion. When you buy a product on Minimum RP, you respect the many trouble and hardship the company has undergone to arrive at this price. One can feel the immense pain a company would take to come to this number. And you would know its worth, true worth, a number that is a result of many experts involved in the business and the biggest help to the customer that he no more needs to haggle. He can go home in peace knowing that he couldn’t have paid anything less than this and neither will his neighbor.

There is one other hitch. One can see that we are using the wages of the employees to arrive at a MRP but then again, how would one know whats the true worth of this particular employee, what should be his appropriate salary. Again one can see that we need to know how the company is performing and how are the shoes selling but that means you know the price of the shoe already. How did you arrive at the shoe price if you are not sure at the fitting salary of the employee and how would you determine an employee's salary (the true worth of it) if you don't know market performance of the product and hence the product price.

PS: The process of arriving at the MRP is completely the author's personal belief. There may be some business practice involved and the author may not be knowing it.

### The invisible bond between the Grands

Its been a long time since I wrote here last but I am always glad to be here. The thing is, I have got something, something of a topic, something that has been in my mind and now I thought of putting it here for record.

Although this kind of affection is very common but there exists other similar bindings as well. For instance, the older people more friendly with small kids, their grandchildren and vice-versa. Teenagers are rebels, they are young and full of energy, revolutionary. They may have ego clashes with their parents, but they talk with their grand parents. This bond is more vivid if younger the kid and older the grandparents. I’ll tell you my experiences.

While in my school days, I was staying with my Mom and elder brother and we lived in the same city as of my granny’s (mother’s side). During holidays we would visit them. I especially enjoyed the summer vacation when other members would also convene in granny’s big house. My cousins (I have lots of ‘em), uncles, aunts, everyone will be there. It was like a commotion, a revelry. I clearly remember the happiness and excitement in my cousins’ face when they see the olds, they all would touch his feet (and granny’s also) and make some joke (oh, I see some more white hair there) and everybody laughing. I was very fond of my grand parents (both of ‘em). Everyday my Granny would wake me up early (5 am) and I would go and fetch flowers for her prayers before others could. She would ask me for this because she knows I don’t mind. So my day would begin while others would be sleeping. I would bring the news paper to my Grandpa and accompany him to the milkman’s house to fetch milk. His friends from the neighbors (all of his own age) would also join us. The whole time they would just talk and talk and I would just listen. My Grandpa was born in the 1920s. His era was completely different than what is mine now. Many a things that I had studied in history, he had actually witnessed them. That was one of the major reason I liked to hear him out. I would often ask him stuffs like “Have u seen Nehru, Gandhi? Is it true they say Nehru would always keep a red rose in his vest pocket? How you used to travel to distant places? What was the railway like? What were the British like?” His answer were like a whole new story for me. Each question fired at him would return as some true life experience that he witnessed and nonetheless fascinating. He and his friends would converse, complain, blame, suggest, advice and what not. Their sentences would always start with “In my days it used to be like this…” Their life was hard. They were without TV, mobile, cars. In fact our time would seem hard for our grand children. The reason why olders are fond of kids like us because their life stories are amusement for us and they know it. We would always listen to his stories with our mouth wide open and he enjoyed thrilling us equally. He would show me the coins of his era. They are no less than a treasure. He would show me a coin and say “look, this is 1 anna, this is 1/4th of anna, this one 1/8th of anna etc.” I would jump out of my seat with excitement and realize that the 1 Re coin that we use today which is also called barah-anna and is called so because there existed a currency called anna and when you bring 12 annas together it makes for 1 Rupee. The same logic also explains why 50 Paise is also called aath-anna (8 annas) and 25 Paise called char-anna (4 annas). Amazing!!!! I never knew of the logic before I saw the anna.

My Grandfather never failed to surprise me. Every single thing of his was a story and learning experience for me. When I was a kid (10-12yrs) I would always accompany him for his market trip. There he would teach me how to pick the best of vegetables, how to know which one would taste good, how to make use of your senses (touch, see, smell even hearing sometimes) and choose the best one. I was amazed to see his knowledge about everything in the market. He had an idea about every vegetable present there. He knew which one tastes what. I had seen grown-ups looking at some new stuff in the market and asking the vendor “Hey, what is it and how does it taste and how do you cook it etc.” I never saw Grandpa making that question and in fact he would be the first one to explain me about it when he would see my curious look over the new vegetable. We generally assume with old age experience comes automatically but when I see my Grandpa like this I believe he fought for it. He not only incorporated it but he ingrained it in himself like a tattoo, for the rest of his life. That’s why I valued his teaching.

When we would return home my aunts (his daughters) would generally complain “Oh Daddy, why would you bring this and that, why would you spend so much on it etc etc” and my Grandpa would usually say “So wht if its expensive, it definitely tastes good and moreover I bought this for my grand kids. Who knows this may be the only time they will taste something like it.” Such was his love for us.

They would feed us new things everyday. Sometimes Grandpa would bring crabs for lunch. There is a lot of process involved before a live crab is made ready to cook. The crab seller doesn’t do it. You have to do it. And the problem is not all of people know how to do it and that is the reason why crab is rarely served for lunch in our house. But my Grandpa knew the process and every time he would bring crabs, he would explain it to me. The process is very tiring, slow, and requires precision and patience. You have to separate the limbs one after another, hit the scale at some particular place only and be careful about hitting at other places. There is no harm if you tear it apart like papers from books except that its very ‘crab-like’ taste will be lost. So very delicately and patiently he would follow it and explain it to me at every step. This is the eye, this is its claws and this is its joints, this portion tastes the best, this piece tastes salty etc. It’s a very rare art, to say. I have eaten crabs only 2-3 times in my lifetime and that too only at my Granny’s. This speaks for it. And I must admit, I can still feel the smell and taste of it, thanks to my Grand Parents. No one else in my family know about the crab business so I never got to eat one after my Grand Father expired.

While having lunch also, he would guide us to the very minute details. He would tell us how to hold that chicken piece and try sucking into that hole and lo and behold, the bone marrow of chicken is in my mouth and it tastes awesome, thankyou Grandpa, I never knew of it. Then sometimes he would pass one of his meat piece to me and say “It’s the liver of the chicken, it must taste good to you” and my aunts would say “Dad, that was for you, you should have those, you like it” and then my Grandpa would go “so what, I have got others, see.” You see, these nice little gestures of love and affection made me admire him all the more.

My Grandma is no less the woman. She is a terrific woman. If Grandpa’s area of expertise was the outside world, Granny is the queen of the house. She takes care of everything related to housekeeping, from cooking to cleaning. She is amazing at cooking especially. I am personally a big fan of hers and I know Sanjeev Kapoor or any of the world’s other greatest cooks cannot dare to match her (atleast for me). Her each and every dish in on the tip of my tongue. Anytime anywhere, I can clearly feel the smell and taste of her food. That is her magic. I would always long to visit her and the thought of her hand cooked delicious food was always on my mind. Give her any combination of vegetables and she will always surprise you. I remember many a times it had happened that suddenly we discover that there is nothing in the house except this few vegetables and that too partially rotten and then Granny would see the stuffs and say “why not make something like …” and everybody else would go “wht??????? (with wide eyes)No No it wont work etc” and Granny would do some this and that zig-zag and Bingo, the most awesome dinner ever eaten. We, the tiny grand kids were her greatest critics.

She is very polite and soft spoken too. I had personally witnessed her intelligence and common sense many a times. I consider her the most intelligent person in our family, hands down without a doubt. I can say this because no one else but I, had myself seen her in action. Sometimes I would come to her with some problem, she would look at it, do some changes and say “try this one now, I think it will work” and I would go  “Oh My God. Brilliant. Absolutely Brilliant. Genius bla bla bla.” Sometimes when I think of those instances I have a feeling that why I haven’t come across any such intelligence from others, from people of my age. Sometimes I would think,  look at my Granny, she didn’t study past class 8 but she is no match to a graduate of our generation. Her intelligence that I witnessed I hardly believe someone else can amaze me like that.

Another thing that reminds you of your Grand parents is their death. For a majority of kids, their first experience with death is through their grandparents. It hurts them the most. After all these years of learning, sharing, joy, play times, its death suddenly. That old man is cold now. When I saw my Grandpa’s dead body and my family members sitting beside it and crying hysterically, I suddenly knew that that old man meant so much for others and for you and that you are going to miss him dearly. The feeling drove me further towards him. It’s been said that grandparents are reborn in the form of their grandchildren. I think its probably because there exists a strong, invisible and unconscious bond between them. I admit my life has very much been influenced by my Grandpa and Grandma. I am sure it must be the same with you too.