Online commerce in India is increasing at a fast clip. The number of online tickets booked on IRCTC site is up from 4.6 million in April 2009 to 6.5 million in January 2010. 40%+ growth in less than 9 months is a very positive sign. Railways is one of the largest enterprises in India (by turnover, customers and employees). Computerized reservations started by Railways 20 years ago brought the benefits of computerization closer to common public. IRCTC is repeating the same success now in online environment.
From a consumer perspective, online railway reservation saves plenty of time in traveling to nearest reservation center, provides them easy access through any cybercafe, visibility of reservation status and with transaction charges kept at minimal Rs25, it makes economic sense for consumers to adopt. From Railways perspective, it eliminates the need for new reservation centers, computers and clerical staff for entering data and printing tickets. For cybercafes, it creates a business opportunity - many of them have become travel agents and provide services like making online payments on behalf of customers and accept service charges in lieu of this service.
Online Airline and hotel bookings are also on the upswing. Will online retailers take notice? If businesses offer value, Indian customer is willing to make online payments or find ways of doing that. It is time for them to ask the question - Am I offering real value to the customer?
Tuesday, February 23, 2010
Thursday, February 18, 2010
Me Too Google Buzz fizzles out
Since last week, Google Buzz has created buzz for almost all the wrong reasons. First a me-too product and then a backlash on privacy. As Google has proved to many of its competitors, a me-too product is a hard sell in the world of free web. An imitation of FaceBook with little incremental value from integration of e-mail was unlikely to work in any case.
Except for the fact that FaceBook does not provide e-mail service, FaceBook is well integrated with almost all major e-mail service providers.
The bottom-line remains - if the offering is good, customers are willing to accept inconveniences and faults, but that can almost kill a me-too service which no one wants. All of us are, of course, wiser in hindsight.
Except for the fact that FaceBook does not provide e-mail service, FaceBook is well integrated with almost all major e-mail service providers.
- You can import your contacts from popular e-mail sites. After importing the contacts, I can pick and chose which ones to invite and when.
- If one of the imported contacts joins the social networking site, I get a prompt about the same. I can invite that person and we get connected (LinkedIn feature).
- Discussions forums, new connections, messages from friends, daily network digests are all integrated with e-mail.
The bottom-line remains - if the offering is good, customers are willing to accept inconveniences and faults, but that can almost kill a me-too service which no one wants. All of us are, of course, wiser in hindsight.
Thursday, February 11, 2010
Banks Vs Home Loan Borrowers
Indian Banks continue to follow a teaser pricing strategy - offering a low teaser rate for new customers while older customers pay 2-3% more than the rate offered to new customers. The way it is done by providing a discount to new customers over the floating prime lending rate (PLR), which bank claim is set based on prevailing interest rate environment.
It is always a risk getting locked into one bank's loan because banks levy a charge if you want to transfer loan from one bank to another. Even though prepayment charges are often low and nil in some case, it is not feasible for everyone to payback the loan first and then seek a new loan from another bank. Also, once the property has been purchased, the new loan will be denied for policy reasons (Banks offer loans only for new purchases and not refinance existing properties) or may attract higher rate (in case, the reason cited is home repairs).
RBI (Reserve Bank of India) has issued a circular to IBA (Indian Banks Association) to explain the gap between the two rates and IBA today declined to make adjustments for old borrowers. Moral advice does not seem to be helping, it is probably time for RBI to issue binding regulatory notifications. One reason teaser rates are low is because of competition. RBI should introduce competition once a loan has been taken. This will keep banks on their toes. For example, IRDA has capped Insurance Policy charges and mandated surrender charges to be zero for policies older than 5 years. This ensures Insurance companies can lose customers if their service levels fall. RBI can take the cue and mandate the following -
1. All loans more than 3 years old should have zero prepayment charges.
2. Banks cannot levy loan transfer charges after 3 years of loan. Once competition is introduced for the whole life of the loan, banks will be forced to offer good rates for the entire tenure of the loan.
3. Banks cannot offer teaser rates which are more than 1% lower than the existing prime lending rate (PLR) for home loans.
RBI needs to act and act now.
It is always a risk getting locked into one bank's loan because banks levy a charge if you want to transfer loan from one bank to another. Even though prepayment charges are often low and nil in some case, it is not feasible for everyone to payback the loan first and then seek a new loan from another bank. Also, once the property has been purchased, the new loan will be denied for policy reasons (Banks offer loans only for new purchases and not refinance existing properties) or may attract higher rate (in case, the reason cited is home repairs).
RBI (Reserve Bank of India) has issued a circular to IBA (Indian Banks Association) to explain the gap between the two rates and IBA today declined to make adjustments for old borrowers. Moral advice does not seem to be helping, it is probably time for RBI to issue binding regulatory notifications. One reason teaser rates are low is because of competition. RBI should introduce competition once a loan has been taken. This will keep banks on their toes. For example, IRDA has capped Insurance Policy charges and mandated surrender charges to be zero for policies older than 5 years. This ensures Insurance companies can lose customers if their service levels fall. RBI can take the cue and mandate the following -
1. All loans more than 3 years old should have zero prepayment charges.
2. Banks cannot levy loan transfer charges after 3 years of loan. Once competition is introduced for the whole life of the loan, banks will be forced to offer good rates for the entire tenure of the loan.
3. Banks cannot offer teaser rates which are more than 1% lower than the existing prime lending rate (PLR) for home loans.
RBI needs to act and act now.
Tuesday, February 9, 2010
Jobs are back !!
Indian job market is now back on the growth path, even though it is still down from July 2008 levels. Naukri JobSpeak Index is in positive territory for month of December when compared to last year's level. In fact, Y-o-Y growth has shown improvement for the last 6 successive months.
Looking at the sectoral indices, IT Software and Services, Telecom, Retailing continue to lag the overall market, while real estate, NGOs have strong positive trends. Recruitment is also in strong positive territory.
Jul09 | Monthly -27% | 3-month Trailing -21% |
Aug09 | -22% | -19% |
Sep09 | -24% | -21% |
Oct09 | -10% | -18% |
Nov09 | -5% | -13% |
Dec09 | 2% | -2% |
Thursday, February 4, 2010
ICICI Prudential ACE - Its an ACE
ICICI Prudential has recently launched ACE which is much better than my previous best choice for a ULIP (Unit Linked Insurance Plan) - iGain2 from Bajaj Allianz. I discovered this policy almost by accident, since I had given up on ICICI Prudential. I had hoped for a good ULIP product from ICICI Prudential and have been disappointed for last 5 years. Finally, they have delivered a good product. Thanks to http://www.policybazaar.com for helping me discover this policy.
Here are few plus points for ICICI Prudential Ace
1. Zero premium allocation charge - While IGain2 was the only product which had zero premium allocation (that was not a pension plan), ICICI Pru Ace joins the list. Unlike IGain2, there is no premium threshold which is good for small investors.
2. Lower Administration Charges - With fixed administration charges of Rs 60 per month, the charge is much lower than IGain2 (Rs 100 per month).
3. Loyalty Addition - ICICI Pru Ace will give loyalty addition every 5th year from 10th year onwards - equivalent to 2.5% of average funds in preceding 8 quarters. This is really significant and effectively lowers the fund management charge significantly below IRDA dictated norms.
4. 2% additional premium allocation - IGain2 offers 2% additional premium allocation from 11th year onwards. ICICI Prudential Ace does a one up on IGain2 and offers 2% additional premium allocation from 6th year onwards.
5. Lower mortality charges - ICICI Pru Ace has lower mortality charges as compared to IGain2. They are still higher than other insurance companies (for example, Aegon Religare). However, benefits on other charges makes up for higher mortality charges, if you are looking for 5X sum assured. For 20X sum assured, you may want to check the final illustration to make the comparison.
Now the downsides -
1. Less flexibility - Only 4 switches are free, partial withdrawal allowed once in three years and limited only to 20% of funds, and host of other restrictions (for example, loyalty additions only if all premiums are paid).
I am concerned by this 3 year lock-in between partial withdrawals. Financial exigencies can happen anytime and such restrictions can cause serious damage in the future. I also don't understand the purpose behind this restriction since I can always surrender my policy. When I can make 100% withdrawal, why is ICICI Pru not allowing me to make partial withdrawals at will.
Update (9th Feb 2010) - ICICI Prudential ACE cannot be structured as a Children Insurance Plan, unlike IGain2. If you are looking a Children Insurance Plan, IGain2 is still the best.
2. Premium allocation charge on top-ups -ICICI Prudential Ace has 1% charge on top-ups which is the anti-thesis of existing ULIP structures. Current trend is zero allocation charge on top-ups and 5%+ premium allocation charge on first/second year premiums. Since I don't plan to do top-ups, I am fine with this.
3. Online Systems and customer service - Despite ICICI group's focus on technology and customer service, I have found that ICICI Prudential Mutual Fund's IT systems lag behind modern times. Online purchase of Ace does not work at present (link throws up a server error). So far, my experience with Bajaj Allianz online system and customer service for IGain has been good.
4. Fund Management Charges- Fund management charges are now standard across most ULIPs with IRDA dictating them. Before this regulation came into force, ICICI Prudential had the highest fund management charges. However, Ace seems to match the charges with other ULIPs now, except for debt funds. Unlike other ULIPs which charge 1% or less for debt funds, ICICI Pru Ace charges 1.35%.
As usual, please consult your financial advisor before making a choice. I don't recommend any financial investment products and please make your own decision taking all other factors into account.
Here are few plus points for ICICI Prudential Ace
1. Zero premium allocation charge - While IGain2 was the only product which had zero premium allocation (that was not a pension plan), ICICI Pru Ace joins the list. Unlike IGain2, there is no premium threshold which is good for small investors.
2. Lower Administration Charges - With fixed administration charges of Rs 60 per month, the charge is much lower than IGain2 (Rs 100 per month).
3. Loyalty Addition - ICICI Pru Ace will give loyalty addition every 5th year from 10th year onwards - equivalent to 2.5% of average funds in preceding 8 quarters. This is really significant and effectively lowers the fund management charge significantly below IRDA dictated norms.
4. 2% additional premium allocation - IGain2 offers 2% additional premium allocation from 11th year onwards. ICICI Prudential Ace does a one up on IGain2 and offers 2% additional premium allocation from 6th year onwards.
5. Lower mortality charges - ICICI Pru Ace has lower mortality charges as compared to IGain2. They are still higher than other insurance companies (for example, Aegon Religare). However, benefits on other charges makes up for higher mortality charges, if you are looking for 5X sum assured. For 20X sum assured, you may want to check the final illustration to make the comparison.
Now the downsides -
1. Less flexibility - Only 4 switches are free, partial withdrawal allowed once in three years and limited only to 20% of funds, and host of other restrictions (for example, loyalty additions only if all premiums are paid).
I am concerned by this 3 year lock-in between partial withdrawals. Financial exigencies can happen anytime and such restrictions can cause serious damage in the future. I also don't understand the purpose behind this restriction since I can always surrender my policy. When I can make 100% withdrawal, why is ICICI Pru not allowing me to make partial withdrawals at will.
Update (9th Feb 2010) - ICICI Prudential ACE cannot be structured as a Children Insurance Plan, unlike IGain2. If you are looking a Children Insurance Plan, IGain2 is still the best.
2. Premium allocation charge on top-ups -ICICI Prudential Ace has 1% charge on top-ups which is the anti-thesis of existing ULIP structures. Current trend is zero allocation charge on top-ups and 5%+ premium allocation charge on first/second year premiums. Since I don't plan to do top-ups, I am fine with this.
3. Online Systems and customer service - Despite ICICI group's focus on technology and customer service, I have found that ICICI Prudential Mutual Fund's IT systems lag behind modern times. Online purchase of Ace does not work at present (link throws up a server error). So far, my experience with Bajaj Allianz online system and customer service for IGain has been good.
4. Fund Management Charges- Fund management charges are now standard across most ULIPs with IRDA dictating them. Before this regulation came into force, ICICI Prudential had the highest fund management charges. However, Ace seems to match the charges with other ULIPs now, except for debt funds. Unlike other ULIPs which charge 1% or less for debt funds, ICICI Pru Ace charges 1.35%.
As usual, please consult your financial advisor before making a choice. I don't recommend any financial investment products and please make your own decision taking all other factors into account.
Tuesday, February 2, 2010
Market Leadership Feeds on Itself
Market leaders across product categories benefit because of their leadership position. High volumes enable a strong channel presence. Counterparties give them first preference when looking for partners and regulators and policy makers listen more to their views. Finally, customers prefer to buy what everyone is buying. This is visible cross product categories. Here are a few examples.
Maruti Suzuki leads in the small car segment and has over 50% market share of the overall car market in India. Customers see more Maruti cars on the road than other brands. Product volumes support a lower cost structure which feeds on itself. Maruti has been using its strong dealer and service network as an important messaging pillar in its marketing communications (a traveler finds a service station on top of the mountains). However, we must also give credit to Maruti for maintaining a strong product line, high service quality standards, low cost of maintenance and also its strong presence in pre-owned cars.
Microsoft is another clear beneficiary of its market leadership in desktop software. Its strong presence in educational segment, a strong network of training institutes supporting Windows and MS Office software, and unintended benefits of piracy – all of have helped Microsoft retain it stranglehold on desktop software.
a) Linux has remained in confines of enterprise server market while Apple has failed to execute well in emerging markets like India.
b) Assembled PCs using Intel software have maintained high market share until recent reduction in taxes have led to increased presence of branded PCs. Assembled PCs often have pirated software. This increases price differential with Macs. At the same time, Apple has failed to justify its price with the value it delivers. Needless to say, Apple has almost negligible market share in India and that too can be attributed to technical staff in enterprises convincing their employers to grant their wish as favor. I have seen a strong tussle between employee’s desire for Macs and enterprises reluctance to pay for what is seem as non-essential purchase.
c) The biggest challenge for Apple in India is visibility. Most consumers don’t know about Mac or its benefits. Even if they know about it, they don’t consider it as a viable option. There are very few evangelists for Mac in India, which is the strength of Apple’s marketing in the developed world. Apple needs to fix the awareness issue first. Second most important issue relates to cost of purchase and maintenance. Thirdly, it is important to induce trials to create a positive word of mouth. Make the initial consumers "WOW!!" with the product and customer support. Make them your evangelists.
d) Changing consumer preferences takes time, investments and most important, patience from top management. When Kellog’s entered India, they were willing to wait for 20 years to make profits. Is Apple willing to invest and wait? Is Apple willing to take up the challenge? Success will be hard, but is very much possible.
While it is easy to understand why market leadership helps in physical world (role of dealer and service network), the effect is also visible in digital world, for example, Google commands over 90% market share in India compared to much lower market share in the developed markets.
a) Good word of mouth publicity has probably helped Google the most. A new customer often looks to peers or experienced users for guidance on which one is the best to use.
b) Google has obviously benefited from Yahoo’s failure to execute well. You need to look at Google maps and Yahoo maps for India to see why Google has succeeded while Yahoo has not.
c) Yahoo has not managed to beat rediff or indiatimes on news content. Rediff and Indiatimes have leveraged their early entry, along with local content and partnerships. Being a late entrant with me-too offerings has limited Yahoo’s success in India. On the other hand, search has natural economies of scale. Local players are not able to compete with size and scale of Google.
In two of the three examples, global leadership seems to imply market leadership in India. Maruti Suzuki is the only one exception. Success of Maruti Suzuki can also be attributed to strong support from government in its early days and a favorable regulatory regime towards small cars (a segment in which Suzuki has strong presence). In technology, one call probably say that global leadership makes a huge difference in the Indian market as Indian consumer still considers herself as a follower and takes lead from others on what is the best product to use. Presence on strong Indian community in the US and its strong technology linkages has meant that LinkedIn and Facebook are growing at a faster pace in India.
Maruti Suzuki leads in the small car segment and has over 50% market share of the overall car market in India. Customers see more Maruti cars on the road than other brands. Product volumes support a lower cost structure which feeds on itself. Maruti has been using its strong dealer and service network as an important messaging pillar in its marketing communications (a traveler finds a service station on top of the mountains). However, we must also give credit to Maruti for maintaining a strong product line, high service quality standards, low cost of maintenance and also its strong presence in pre-owned cars.
Microsoft is another clear beneficiary of its market leadership in desktop software. Its strong presence in educational segment, a strong network of training institutes supporting Windows and MS Office software, and unintended benefits of piracy – all of have helped Microsoft retain it stranglehold on desktop software.
a) Linux has remained in confines of enterprise server market while Apple has failed to execute well in emerging markets like India.
b) Assembled PCs using Intel software have maintained high market share until recent reduction in taxes have led to increased presence of branded PCs. Assembled PCs often have pirated software. This increases price differential with Macs. At the same time, Apple has failed to justify its price with the value it delivers. Needless to say, Apple has almost negligible market share in India and that too can be attributed to technical staff in enterprises convincing their employers to grant their wish as favor. I have seen a strong tussle between employee’s desire for Macs and enterprises reluctance to pay for what is seem as non-essential purchase.
c) The biggest challenge for Apple in India is visibility. Most consumers don’t know about Mac or its benefits. Even if they know about it, they don’t consider it as a viable option. There are very few evangelists for Mac in India, which is the strength of Apple’s marketing in the developed world. Apple needs to fix the awareness issue first. Second most important issue relates to cost of purchase and maintenance. Thirdly, it is important to induce trials to create a positive word of mouth. Make the initial consumers "WOW!!" with the product and customer support. Make them your evangelists.
d) Changing consumer preferences takes time, investments and most important, patience from top management. When Kellog’s entered India, they were willing to wait for 20 years to make profits. Is Apple willing to invest and wait? Is Apple willing to take up the challenge? Success will be hard, but is very much possible.
While it is easy to understand why market leadership helps in physical world (role of dealer and service network), the effect is also visible in digital world, for example, Google commands over 90% market share in India compared to much lower market share in the developed markets.
a) Good word of mouth publicity has probably helped Google the most. A new customer often looks to peers or experienced users for guidance on which one is the best to use.
b) Google has obviously benefited from Yahoo’s failure to execute well. You need to look at Google maps and Yahoo maps for India to see why Google has succeeded while Yahoo has not.
c) Yahoo has not managed to beat rediff or indiatimes on news content. Rediff and Indiatimes have leveraged their early entry, along with local content and partnerships. Being a late entrant with me-too offerings has limited Yahoo’s success in India. On the other hand, search has natural economies of scale. Local players are not able to compete with size and scale of Google.
In two of the three examples, global leadership seems to imply market leadership in India. Maruti Suzuki is the only one exception. Success of Maruti Suzuki can also be attributed to strong support from government in its early days and a favorable regulatory regime towards small cars (a segment in which Suzuki has strong presence). In technology, one call probably say that global leadership makes a huge difference in the Indian market as Indian consumer still considers herself as a follower and takes lead from others on what is the best product to use. Presence on strong Indian community in the US and its strong technology linkages has meant that LinkedIn and Facebook are growing at a faster pace in India.
Monday, February 1, 2010
Apple iPad - Wait for v2.0
Apple iPad is probably one of the few Apple products which have a confused positioning.
It is not a mobile phone- it is too big for that purpose. Those expecting it to be an extension of iPhone did find that similarity. However, they are underwhelmed as iPad does not seem to have made effective use of higher computing power and screen space. Lack of Flash support and its central position in Apple's marketing blitz is intriguing. It is hard to understand why Steve Jobs chose to demo "absence of Flash" rather than positives of iPad.
iPad is not as functional as a laptop. Absence of keyboard makes it a less efficient tool for professionals who travel but still need a fully functional computing system.
iPad also does not serve the purpose of stress free book reading, a market which Kindle dominates. Even though a few reviewers give iPad's high screen resolution a thumbs up vs. Kindle. Kindle is still under threat from v2.0 of iPad. As Nick Marshall points out, "Kindle is a one-dimensional device with limited format support and .... competes in a micro niche. The distinct advantage the Amazon Kindle has over the Apple iPad is the data subscription fee." That said, e-book reader is a much smaller market and unlikely to touch millions of iPhones and iMacs.
Another usage scenario is head on competition with Tablet PCs or netbooks. Tablet PCs is a niche market with most common usage in the healthcare industry. Doctors are finally being forced to move towards e-prescription and tablet PCs are more user friendly and time efficient than PCs. However, compared to Netbooks, iPad does not make the cut. And as Nick Marshall says "Price-wise the $499 entry level iPad is still over 60% more expensive than the Dell Inspiron Mini and lacks many key features: multitasking, hdmi video output (external monitor), optional external dvd drive and front-facing camera (web cam)." That said, Apple has huge volumes when it comes to components like touchscreen, batteries and can use some of its iPhone component advantage. iPad v2.0 can spell the doom for net-books and tablet PCs.
iPad is probably a niche product and will remain so till next version of iPad makes significant adjustments to price and product positioning. iPad v1.0 is probably not going too far, however, I am going to wait for v2.0 before writing off this product.
It is not a mobile phone- it is too big for that purpose. Those expecting it to be an extension of iPhone did find that similarity. However, they are underwhelmed as iPad does not seem to have made effective use of higher computing power and screen space. Lack of Flash support and its central position in Apple's marketing blitz is intriguing. It is hard to understand why Steve Jobs chose to demo "absence of Flash" rather than positives of iPad.
iPad is not as functional as a laptop. Absence of keyboard makes it a less efficient tool for professionals who travel but still need a fully functional computing system.
iPad also does not serve the purpose of stress free book reading, a market which Kindle dominates. Even though a few reviewers give iPad's high screen resolution a thumbs up vs. Kindle. Kindle is still under threat from v2.0 of iPad. As Nick Marshall points out, "Kindle is a one-dimensional device with limited format support and .... competes in a micro niche. The distinct advantage the Amazon Kindle has over the Apple iPad is the data subscription fee." That said, e-book reader is a much smaller market and unlikely to touch millions of iPhones and iMacs.
Another usage scenario is head on competition with Tablet PCs or netbooks. Tablet PCs is a niche market with most common usage in the healthcare industry. Doctors are finally being forced to move towards e-prescription and tablet PCs are more user friendly and time efficient than PCs. However, compared to Netbooks, iPad does not make the cut. And as Nick Marshall says "Price-wise the $499 entry level iPad is still over 60% more expensive than the Dell Inspiron Mini and lacks many key features: multitasking, hdmi video output (external monitor), optional external dvd drive and front-facing camera (web cam)." That said, Apple has huge volumes when it comes to components like touchscreen, batteries and can use some of its iPhone component advantage. iPad v2.0 can spell the doom for net-books and tablet PCs.
iPad is probably a niche product and will remain so till next version of iPad makes significant adjustments to price and product positioning. iPad v1.0 is probably not going too far, however, I am going to wait for v2.0 before writing off this product.
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